Kentucky gives remote retailers more breathing room

Sales tax compliance may now be a bit easier for many out-of-state businesses with customers in Kentucky. As of July 1, 2021, remote sellers have an additional 30 days to register for sales tax after establishing economic nexus with Kentucky, and marketplace providers are no longer required to register for a second sales and use tax account to report third-party sales.

Kentucky was one of the first states to adopt economic nexus after the landmark U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. (June 21, 2018): Out-of-state sellers with at least 200 transactions or $100,000 in sales have been required to register for Kentucky sales tax since October 1, 2018. Marketplace providers (aka, facilitators) have been responsible for collecting and remitting sales tax on behalf of third-party sellers since July 1, 2019.

In the three years since the Wayfair decision, many states have amended their economic nexus and marketplace facilitator laws in some way, for one reason or another. For example, Arizona and Georgia both lowered their sales thresholds; Maine, Tennessee, Washington, and Wisconsin eliminated their transaction thresholds. Several states also expanded economic nexus laws to additional taxes and fees, and we’ll likely see more of that in the years to come.

Kentucky opted to give retailers more time to register, and to give marketplace providers more freedom of choice.

Initially, Kentucky required remote retailers to register within 30 days after crossing its sales or transaction economic nexus threshold. With the enactment of House Bill 249, remote retailers and marketplace providers now have “at the most 60 days” after meeting a threshold to register. The extra 30 days will undoubtedly be welcome.

Some states require remote retailers to register as soon as they cross an economic nexus threshold, and to start collecting tax on the very next transaction. That’s the situation in Ohio. According to (somewhat dated) guidance from the Ohio Department of Taxation, if an out-of-state seller exceeds $100,000 of gross sales into Ohio on October 15, 2019, “the out-of-state seller is subject to Ohio’s nexus laws beginning October 16, 2019. The seller must register for a seller’s use tax license and begin collecting sales tax from its customers on October 16, 2019.” 

HB 249 also eliminates the requirement for a marketplace provider to register for a second sales and use tax account for the sales of its third-party retailers. However, marketplaces may still opt to obtain a second permit for marketplace sales once they read the fine print.

As of July 1, 2021, a marketplace provider has two options when registering for a Kentucky sales and use tax permit:

• Register for a single sales and use tax permit to report and remit all tax due on both direct and third-party sales; or
• Register for a second sales and use tax account to collect and remit Kentucky sales tax for facilitated third-party sales.

Should a marketplace provider opt to obtain a single sales and use tax permit, the Kentucky Department of Revenue may require it to provide a separate breakdown of receipts for marketplace retailers once per year. Additional details can be found in this Kentucky Sales Tax Facts sheet and in the text of HB 249.

Retailers that sell to consumers in numerous states must monitor changing economic nexus thresholds and registration requirements in addition to tracking sales into each state. As noted above, it may be necessary to register as soon as a threshold is crossed.

Taking a sales tax risk assessment can help you identify where your economic activity or physical presence may have triggered a sales tax collection obligation. Learn more about Avalara’s three sales tax risk assessment options.