What’s next with taxing Internet sales? Tax Foundation finds states vary in preparation; WA has work to do.

The U.S. Supreme Court’s Wayfair decision opened the door for states to capture sales tax revenue from Internet sellers. It also created uncertainties that continue to cloud the issue. 

The Tax Foundation has reviewed relevant state tax policies to identify which states are best prepared and which have work to do.

Since the decision, states have begun considering actions that they might need to take to collect sales tax on internet transactions while adhering to the Wayfair decision. The Court stopped short of upholding South Dakota’s collection of remote sales taxes as constitutional but gave several reasons why the state’s law in particular and its tax compliance system in general would not be a burden on interstate commerce. This report reviews the Wayfair decision and evaluates existing state laws to determine what further action each state may need to take.

TF prepared this map, providing a good overview of the national situation.

While Washington is in better shape than many, the Tax Foundation analysis puts our state in the “flashing yellow light” category, saying Washington should” proceed with caution.”

  • Washington Department of Revenue announced on August 3, 2018[56] that retailers with $100,000 in gross retail sales or 200 transactions in the current or previous year must collect sales tax, effective October 1, 2018. The Department did not cite a statutory basis for its announcement. This new requirement is in addition to a law that went into effect July 7, 2017[57] that includes a notice-and-reporting requirement for retailers with more than $10,000 in sales in the state, and retailers must either collect the tax or comply with the notice-and-reporting provision. There is also a click-through nexus provision for referrers with more than $267,000 in sales in the state. Remote retailers with $267,000 in gross receipts in the state are also deemed to have nexus[58]for the state’s Business & Occupation gross receipts tax. The Department has posted a FAQ page[59]. The state should consider enactment of a statute codifying these provisions and rescinding any duplicative or superseded portions of the 2017 law. The state should also consider increasing the de minimis threshold for its marketplace law … above the very minimal $10,000.

We expect there could be some action in the next legislative session.