Kentucky gives sellers more time to comply with remote sales tax law

Shortly after the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. (June 21, 2018) that a state could impose a tax collection obligation on businesses with no physical presence in the state, Kentucky announced that its economic nexus law took effect July 1, 2018. It’s now allowing sellers a bit more time.

Under economic nexus, a seller establishes an obligation to collect and remit sales tax solely through its economic activity in a state (e.g., number of transactions or volume of sales). Physical presence, once used as a litmus test for state taxing authority, is no longer the only prerequisite.

Kentucky law (HB 487) holds that a retailer with no physical presence in the state has a tax collection obligation if, in the previous or current calendar year, it has 200 or more sales delivered into the state, or $100,000 or more in gross receipts from sales into Kentucky. These are the same nexus thresholds adopted by South Dakota and allowed by the Supreme Court to stand in the Wayfair decision.

In its first statement after the ruling, the Kentucky Department of Revenue said sellers should “prepare to begin the registration process for collection of Kentucky sales and use tax on a prospective basis.”

It’s now providing more details. On July 30, 2018, the department updated its announcement to remote retailers. Although it still states that Kentucky’s economic nexus law took effect July 1, 2018, it’s now allowing remote retailers a bit more time to comply: “Registrations should be completed with sales and use tax collections beginning by October 1, 2018.” The department asks that sellers contact the department “if there are concerns about complying with this timeframe.”

Remote retailers meeting the economic nexus thresholds in Kentucky may register through the Department of Revenue or the Streamlined Sales Tax Governing Board. Like South Dakota, Kentucky is a charter member of this organization, which was developed to simplify the administration of sales and reduce the costs of compliance. In South Dakota v. Wayfair, the Supreme Court highlighted South Dakota’s membership, noting that the state had taken steps to reduce the burden of compliance for businesses.

Change is afoot

Although the delayed effective date will undoubtedly be welcomed by many retailers, it’s indicative of a slightly more troubling trend: Sales tax laws and policies are mercurial. In the weeks since the Supreme Court ruling in Wayfair, numerous states have announced they are — or will soon be — enforcing remote sales tax laws. Others have enacted new legislation or adopted new policies that will soon require more remote sellers to collect and remit tax.

In this unstable landscape, it’s more important than ever that sellers have a clear understanding of state nexus laws. This Avalara resource page is being updated as we learn of new and changing laws.

Furthermore, sellers need to know how much business they do in all states and whether that puts them at risk for noncompliance. The team at Avalara Professional Services can help.