Washington State Bill Modifies Nexus Thresholds, Obligations, and Tax Exemptions

On March 14, 2019, the Governor of Washington State, Jay Inslee, signed Substitute Senate Bill 5581 (the bill), which introduces the following changes:

  • Modifies nexus thresholds for sales and use tax and Washington Business & Occupation (B&O) tax
  • Imposes greater obligations on marketplace facilitators
  • Limits Washington’s import commerce tax exemption

Here’s a look at new requirements—including nexus thresholds, obligations, and effective dates.

Washington Sales and Use Tax Nexus Thresholds

Following the US Supreme Court’s decision in South Dakota v. Wayfair, Inc., the Washington Department of Revenue imposed economic nexus thresholds. The thresholds required remote sellers and marketplace facilitators to register for, collect, and remit Washington retail sales tax if their sales to Washington consumers met either of the following sales thresholds during the current or previous calendar year:

  • $100,000 in retail sales
  • 200 separate transactions

Marketplace facilitators that meet the $100,000 sales threshold must collect sales tax on the following:

  • Receipts from their own sales
  • Receipts from sales in Washington conducted through their marketplace by a marketplace seller

New Requirements

Remote sellers and marketplace facilitators should be aware of the following new requirements and effective dates:

  • Effective March 14, 2019, the bill eliminates the 200 separate transactions threshold.
  • Effective January 1, 2020, receipts counting towards the threshold for collecting sales tax include all gross income of the business.

Note that the previous economic nexus thresholds are still in effect from the period of October 1, 2018, through December 31, 2019. Further, a physical presence in Washington, which need only be demonstrably more than the slightest presence, continues to create nexus in Washington for retail-sales tax purposes.

Washington B&O Tax Nexus Thresholds

Prior to the bill, a nonresident individual or business entity was considered to have substantial nexus with Washington for B&O tax purposes if the remote seller had more than:

  • $285,000 in gross receipts in Washington
  • $57,000 of property in Washington
  • $57,000 of payroll in Washington
  • At least 25% of its total property, payroll, or receipts, in Washington

New Requirements

Effective January 1, 2020, the following changes apply:

  • The property and payroll thresholds are eliminated, including the standard established if an individual or business has at least 25% of their total property, payroll, or receipts in the state.
  • The receipts threshold is lowered to $100,000 in cumulative gross receipts.
  • Inflation adjustments for the receipts threshold are eliminated.
  • The click-through nexus standard is eliminated.

In addition to the economic nexus threshold of $100,000 in cumulative gross receipts, a nonresident individual or business with a physical presence in Washington is deemed to have nexus in Washington for B&O tax purposes.

The changes noted above are effective for all B&O tax classifications, unless an exclusion applies.

Marketplace Facilitators

Effective July 1, 2019, the bill increases marketplace-facilitator obligations by requiring they provide each of their marketplace sellers with access to gross-sales information for all Washington sales made as an agent of the marketplace seller during the preceding month.  Marketplace facilitators must provide access to this information within 15 days following the end of each month.

If the marketplace seller doesn’t receive this information within the designated timeframe, the seller may determine its B&O tax liability based on a reasonable method as may be required or approved by the department.

Effective January 1, 2020, the bill further increases marketplace facilitators’ obligations by requiring marketplace facilitators to collect tax on all other taxes imposed on retail sales.  Additionally, liability relief for marketplace facilitators is limited to certain situations.

Notice and Reporting Requirements

Current notice and reporting requirements provide that remote sellers, marketplace facilitators, and referrers with gross receipts greater than $10,000 and less than $100,000 in the current or immediately preceding calendar year are required to satisfy one of the following criteria:

  • Collect and remit sales and use tax
  • Comply with the notice and reporting requirements

Effective July 1, 2019, these requirements are repealed.

Import Commerce Tax Exemption

Effective March 14, 2019, Washington’s import-tax exemption has been limited. Prior to the bill passing, Washington provided a B&O and retail sales-tax exemption on the sale of tangible personal property that’s in import commerce. The exemption has now been limited to the wholesale sale of tangible personal property in import commerce, but only when the wholesale sale is either of the following:

  • A sale of unroasted coffee beans
  • A sale between a parent company and its wholly owned subsidiary

Note that the sale of tangible personal property in export commerce continues to be exempt from B&O tax and retail sales tax.

We’re Here to Help

For more information about how your business could be affected by Substitute Senate Bill 5581, contact your Moss Adams tax professional or email statetax@mossadams.com.