Washington state legislation to update the state's remote seller rules includes some provisions that are harmful or unrelated to the Wayfair decision and should be removed from the bill, according to several business representatives.
S.B. 5581 (and its House companion, H.B. 1890) would put into statute the stopgap requirements imposed by the state Department of Revenue last year following the U.S. Supreme Court’s South Dakota v. Wayfair Inc. decision, which require remote retailers and marketplace facilitators with over $100,000 in annual Washington state sales or over 200 in-state sales in a year — the same threshold South Dakota established in its remote seller law — to collect and remit the state’s use tax as of October 1, 2018.
According to legislative staff, the bill would increase state revenue by about $310 million over a four-year period. At a February 4 Senate Ways and Means Committee hearing, David Duvall of the Washington DOR said the legislation would help the state transition into the post-Wayfair environment. “This legislation is about transitioning from a Marketplace Fairness [Act] paradigm, where sales tax collection was voluntary, to a Wayfair paradigm, under which sales tax collection is mandated.”
However, the bill also contains a provision that would eliminate the state’s import tax exemption for sales and business and occupation (B&O) tax, except as it applies to wholesale transactions between a parent company and a wholly owned subsidiary. Greg Hanon of the Western States Petroleum Association said the exemption is unrelated to Wayfair, and the provision to eliminate it should be removed from S.B. 5581.
Clay Hill of the Association of Washington Business also urged lawmakers to strip that element from the legislation. "If you’re a foreign company with no physical presence in Washington, you’re now being asked to pay a B&O tax as if you were a resident company here,” he said. “If no other state along the West Coast is imposing that same tax, it’s a bit like Washington state reaching out and saying, ‘We’re going to have a tariff . . . choose another route into the United States.’”
Duvall, however, said that just as requiring remote U.S. sellers to pay sales tax would create a fairer playing field for retailers, so would generally eliminating the import exemption. A Washington retailer “has to charge and remit retail sales tax on all taxable sales, and pay retail B&O, [but] the foreign seller has no obligation to collect and remit any sales tax, and pays no B&O tax,” he said. “This proposal helps level the playing field by eliminating a broad B&O and retail sales tax exemption for import commerce.”
The bill would also impose the state’s 5.9 percent car rental sales tax on short-term rentals by private owners facilitated by car-sharing platforms, which industry representatives said is also unrelated to the Wayfair decision. Legislative staff, however, countered that the provision is related since it also deals with a transaction tax collection requirement for facilitators. Representatives with Turo.com and the Internet Association warned that the requirement would adversely impact private parties seeking to supplement their income through rentals of their personal vehicles.
Other Provisions
Although the bill would maintain the October 2018 effective date for the remote sales tax collection requirements, it would eliminate the 200-transaction threshold prospectively, beginning with the effective date of the legislation, to avoid capturing small sellers with numerous low-dollar-value transactions and prevent overburdening the DOR. The bill would also require marketplace facilitators that meet the threshold to continue to collect the sales tax owed on their own and their third-party sellers’ sales into the state and would also require them to remit other transaction taxes and fees on behalf of sellers beginning in 2020.
The bill would eliminate the Colorado-style reporting requirements enacted in 2017 under H.B. 2163, the Marketplace Fairness Act, which requires sellers and marketplace facilitators with over $10,000 in annual sales into the state to either remit or report the use tax owed on their or their sellers’ Washington state sales. The legislation would also eliminate the state's 2015 "click-through" nexus law.
Under S.B. 5581, businesses with more than $100,000 in sales into the state would also be required to pay the state's B&O tax. Under current law, businesses have nexus for the tax if they have more than $267,000 in sales into the state, adjusted for inflation. S.B. 5581 would also eliminate some other B&O nexus criteria, including that a business have at least 25 percent of its total property, payroll, or receipts in Washington.
Businesses with B&O tax nexus would also have to comply with other DOR-administered taxes and fees.
Mark Johnson of the Washington Retail Association applauded the overall effort to secure sales tax collection from online sellers. However, he suggested that requiring online marketplaces to collect other taxes and fees from sellers could prove problematic. Johnson also raised concerns about the proposed elimination of the import tax exemption.
Hill, meanwhile, argued that the $100,000 threshold for B&O tax nexus is too low.
The bill would also tweak an existing statute that later this year will eliminate a program providing mitigation payments to municipalities that lost sales tax revenue as a result of the state’s adoption of the Streamlined Sales and Use Tax Agreement. Local government representatives at the hearing opposed that program's impending termination.
Candice Bock with the Association of Washington Cities said that although the growth in remote sales tax revenues has helped to compensate some cities for their losses, some cities with large warehouse operations and small local sales tax bases are still losing revenue.
”The new revenue from remote sales doesn’t replace the lost revenue in "about a dozen jurisdictions," according to Bock. “These job centers are in strategic locations . . . I would urge you to not want to incentivize these jurisdictions to change their revenue base,” she added.
The committee didn’t vote on the legislation at the hearing, and lawmakers and speakers indicated that they would continue to discuss the bill.