Local governments in Alaska prepare to tax remote sales
Some out-of-state retailers and marketplace facilitators may soon be required to collect and remit specified local sales taxes in The Last Frontier.
More than 100 borough or municipal governments in Alaska levy local sales tax even though there is no statewide sales tax. Many of these governments are interested in requiring businesses with no physical presence in the locality or state (remote sellers) to collect and remit applicable local sales taxes. In this regard, they’re following the lead of most other states.
All but two of the 45 states with a statewide sales tax require (or soon will) remote sellers to collect and remit sales tax. They won the right to do so when the Supreme Court of the United States overruled a longstanding physical presence rule in its decision on South Dakota v. Wayfair, Inc. (June 21, 2018). Prior to the Wayfair ruling, states couldn’t require a business to collect sales tax unless the business had a physical connection to the state.
Now the Alaska Municipal League is looking to require businesses with no physical presence in a jurisdiction to collect and remit that jurisdiction’s sales tax. On January 6, 2020, the Alaska Remote Sellers Sales Tax Commission finalized the uniform Alaska Remote Seller Sales Tax Code, which establishes a framework for the common rules of the road for administering sales taxes on remote commerce.
The code doesn’t affect tax rates or exemptions: Participating communities will still be able to increase or decrease rates and establish or eliminate exemptions as before.
Centralized administration and sales tax compliance software
Complying with sales tax laws in multiple jurisdictions throughout Alaska could prove burdensome for remote sellers that handle sales tax compliance manually. To solve for this, the commission is working to create a centralized administration system with the Alaska Municipal League, as well as sales tax compliance software.
In other words, the Alaska Remote Sellers Sales Tax Commission is both complicating compliance for remote sellers and providing the means to simplify it.
The software will enable remote retailers to more easily report and remit the required tax online. It will help retailers determine the proper rate of tax and taxability rules via a tax exemption and rate database, including an interactive map of tax rates and jurisdiction boundaries. Thus, any retailer using the software will be able to quickly determine the proper rate due on all transactions. Instantaneously.
Businesses that use the software won’t be held liable in the event the software incorrectly calculates the tax due.
Safe harbor for small sellers
The collection requirement applies both to direct retailers and marketplace facilitators; marketplaces are responsible for collecting and remitting the tax due on sales made through the marketplace (third-party sales).
Yet in the spirit of Wayfair, local governments in Alaska are providing safe harbor for small sellers. Thus, the collection obligation kicks in only if a remote seller or marketplace facilitator has, in the previous calendar year, either:
- $100,000 or more in statewide gross sales from the sale(s) of property, products, or services delivered into the state; or
- 200 or more separate transactions of property, products, or services delivered into the state
Sales made through a marketplace should be included when remote sellers or marketplace facilitators are calculating the threshold.
Impact on in-state businesses
Businesses with a physical presence in Alaska currently don’t have to collect and remit tax on sales made to another jurisdiction unless they have a physical presence in that location. For businesses that don’t qualify for safe harbor, that will change in boroughs and cities that adopt the Remote Seller Sales Tax Code.
In-state businesses will continue to report and remit sales tax to local governments in all jurisdictions where they have a physical presence. When the point of delivery is in a different taxing jurisdiction (i.e., when they don’t have a physical presence in the taxing jurisdiction), the Alaska-based seller will register and remit sales tax through the Alaska Remote Sellers Sales Tax Commission.
Local governments are currently reviewing the uniform code. Once adopted, they’ll inform remote retailers and marketplace facilitators that they must commence collection within 30 days. Initially, the collection obligation will apply to remote retailers and marketplaces that met or exceeded the $100,000 sales/200 transactions threshold during the previous calendar year.
Remote businesses that didn’t meet or exceed the threshold in 2019 will be required to apply to the commission for a certificate of sales tax registration on the latter of:
- 30 calendar days of the effective date of the code; or
- 30 calendar days of meeting or exceeding the threshold
To update software or take care of other technical issues hindering their ability to collect and remit sales tax, remote businesses that meet the threshold may apply for an extension of up to 90 days.
The commission expects the software to be complete by January 31, 2020. Eager-beaver municipalities that adopt the uniform code by mid-February could require collection as early as March and obtain their first remote sales tax revenue in April, assuming the new collection requirement isn’t challenged.
To learn more about how software can reduce the burden of sales tax calculation, collection, and remittance in Alaska, visit avalara.com.
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