When Is Notification of Use Tax Reporting Required? Compliance Q&A

Sales and use tax compliance is the bane of many a seller. The complexity of rules, regulations and product taxability make compliance particularly challenging for businesses that sell into multiple states. Recently we had a question come in pertaining to use tax requirements:

Is it necessary to inform out-of-state customers that they may be liable for use tax reporting?

Certain states have implemented use tax reporting requirements for out-of-state businesses that sell to in-state consumers but do not collect and remit the state’s sales tax. The questioner inquires about guidelines for use tax reporting requirements in Colorado, Oklahoma, South Dakota, and Vermont.

Remote vendors are, in fact, required to notify customers of their use tax obligations in a handful of states. Read on for a summary of state policies.

Colorado

In 2010, Colorado implemented a use tax reporting policy requiring non-collecting out-of-state vendors to inform customers that they have a use tax obligation on remote purchases. In addition, it requires vendors to annually report to the Colorado Department of Revenue a list of their Colorado customers (with billing and shipping addresses) and the total amount of their purchases.

The use tax reporting requirement has been under fire since its inception. The legal battle between the Colorado Department of Revenue and the Direct Marketing Association made it all the way to the United States Supreme Court, which in March 2015 sent the case back to federal court, where evidence is still being gathered

[Direct Marketing Ass’n v. Brohl, Case No. 12-115, Colorado 10th Circuit Court of Appeals]. However, it is unclear whether the Tenth Circuit intends to make a ruling; it may allow the state court, where the case is also pending, to resolve the case [MTC].

An injunction against the reporting requirement stands while it is in dispute.

Oklahoma

Effective October 1, 2010, non-collecting out-of-state retailers who annually make more than $100,000 in gross sales of tangible personal property to Oklahoma consumers are required to give notice that Oklahoma use tax is due (to be paid by the Oklahoma purchaser) on nonexempt purchases. Use tax notices must be placed on websites, catalogs, and invoices. See Okla. Admin. Code § 710:65-21-8(b) for additional details.

South Carolina

Remote vendors that own, lease or utilize a distribution facility in South Carolina must notify South Carolina Internet customers in a confirmation email that they may owe use tax on the total sales price of the transaction. The email must contain links to the South Carolina Department of Revenue website.

Sellers must also send, by February 1 of each year, a notification with a statement of the total sales made to the purchaser during the preceding calendar year. Finally, the use tax requirement must be posted on the seller’s Internet website, catalog, and customer invoices.  See S.C. Code Ann. § 12-36-2691(E)(1) for additional details.

South Dakota

Effective July 1, 2011, non-collecting remote vendors with annual gross sales in South Dakota of $100,000 or more must inform South Dakota customers that use tax is due on non-exempt taxable purchases of tangible personal property, services and electronically transmitted products for use in South Dakota.

The notice must be readily available and placed on websites, catalogs, Internet purchase orders, invoices, bills, receipts, and or packing slips. See South Dakota Sales Tax Public Notice for Non-Collecting Retailers for additional information.

Vermont

Vermont instituted a click through nexus advertising law, effective December 1, 2015. A remote vendor is now presumed to have Vermont nexus (and an obligation to collect sales or use tax) if it has agreements with residents to refer customers that led to sales in excess of $10,000 in the previous year. See Vermont Department of Taxes Click Through Nexus for additional information.

Have a sales or use tax compliance question? Ask it here.