Kansas looks to tax digital goods, remote sales, and marketplace sales

Update 3.26.2019: The Kansas Legislature passed Senate Bill 22, which would impose economic nexus on remote sellers and require marketplace facilitators with nexus to collect and remit tax on behalf of their sellers starting October 1, 2019. The measure would also have reduced the sales tax rate for food and food ingredients. However, Governor Laura Kelly vetoed SB 22 on March 25, 2019. Consideration of HB 2352, discussed below, has stalled. 

Like Missouri, its neighbor to the east, Kansas is moving toward taxing digital products, remote sales, and marketplace sales.

Tax on digital products

Digital products are subject to sales and use tax in approximately 30 states, and new states seem to add them to their list of taxable products every year. If House Bill 2352 is enacted, Kansas will be keeping up with the Joneses.

HB 2352 seeks to tax “all sales of digital property, and subscription services thereto,” whether the right to use the property is temporary, permanent, or “conditioned upon continued payment.”

If the measure is passed as written, Kansas sales and use tax will apply to a variety of digital property, including but not limited to:

• Artwork
• Cloud-based, desktop, mobile, native, and web applications
• Digital audio works (e.g., Apple Music, iTunes, Pandora, and Spotify)
• Digital audio-visual works (e.g., Amazon Prime, Hulu, Netflix)
• Digital books
• Digital photographs and pictures
• Graphics, patterns, and templates
• Magazines, newspapers, and periodicals
• Mobile applications
• Online games, electronic games, and video games
• Video, audio, and other greeting cards
• Any digital code or streaming services related to any of the items listed above

Tax on remote sales

In another trendy move, Kansas is also seeking to tax sales by out-of-state sellers with no physical presence in the state. More than 30 states have adopted new remote sales tax laws since June 21, 2018, when the Supreme Court of the United States overruled the physical presence rule that had prohibited states from taxing remote sales.

Like dozens of other states, Kansas would do this via economic nexus, whereby significant economic activity in the state establishes a sales tax collection obligation.

In many states, economic nexus is triggered when a remote business surpasses a certain threshold of sales in the state or a certain number of sales during a specified time frame. A handful of states only have a sales threshold, and Kansas is looking to emulate that model.

HB 2352 would require a remote vendor to collect and remit sales tax if it has more than $100,000 of cumulative gross receipts from retail sales sourced to Kansas:

• During calendar year 2018; or
• From January 1, 2019, through June 30, 2019; or
• During the current or immediately preceding calendar year.

Any business meeting at least one of the above thresholds would be required to collect and remit the tax on any sales in excess of the $100,000 of cumulative gross receipts from sales in the current calendar year.

The measure would “take effect and be in force from and after its publication in the statute book.” However, remote retailers that have or establish economic nexus wouldn’t be required to collect and remit tax on any sale made prior to July 1, 2019.

Tax collection requirement for marketplace facilitators

To ensure sales tax is applied to marketplace transactions — those made through a marketplace platform such as Amazon, eBay, Etsy, or Walmart — HB 2352 includes a collection provision for marketplace providers.

Starting July 1, 2020, a marketplace facilitator would be required to collect and remit state and local tax on all sales into the state — its own and third-party sales — if it has either a physical presence in Kansas or more than $100,000 of cumulative gross receipts from retail sales sourced to Kansas:

• For calendar year 2018; or
• From January 1, 2019, through June 30, 2019; or
• During the current or immediately preceding calendar year.

Once a marketplace facilitator is required to collect and remit sales tax on behalf of a third-party seller, that marketplace seller is relieved of the obligation to collect tax on those marketplace sales.

As with the remote seller economic nexus provision, marketplace providers would not be required to collect and remit tax on any sale made prior to July 1, 2019.

Marketplace facilitators that meet the economic nexus threshold on or after July 1, 2020, would be required to collect and remit state and local sales or use taxes on any sales in excess of the $100,000 threshold, “beginning on the first day of the next calendar month that is at least 30 days from the date that the marketplace facilitator met the [above] threshold.”

Additional details are available in the text of HB2352.

For more information about states that require remote retailers to collect and remit sales tax, check out the Avalara remote sales tax resource page.