Since the U.S. Supreme Court declined to hear the appeal about a Colorado use tax reporting law last December, the states of Louisiana and Vermont, in addition to Colorado, have enacted use tax reporting requirements that will take effect on July 1, 2017. An Oklahoma use tax reporting requirement has already been in effect since November of 2016. The states of Alabama, Arkansas, Hawaii, Pennsylvania and Washington have use tax reporting rules under consideration in their respective legislatures and we expect more states to get on the use tax reporting bandwagon in the coming weeks, as legislators look for ways to balance their state budgets by June 30.
Use tax reporting laws are applicable to remote vendors who do not meet the substantial nexus requirements for the collection and remittance of sales or use tax in the state, but have met a certain predetermined threshold of sales to customers within the state. The use tax reporting laws are designed to help states track use tax that is due to the state based upon residents’ purchases from remote sellers.
Once the vendor meets the predetermined threshold of sales in the state, the vendor is expected to become compliant with the state’s use tax reporting requirements. While the laws do not require the remote vendors to collect and remit the tax, they are required to meet certain notification or reporting requirements to both the in-state customers and the state. Depending upon the details, the state’s notification requirements can be quite laborious and costly, with penalties for noncompliance that can become very expensive pretty quickly if a vendor is caught unaware. Many remote vendors when reviewing these requirements and penalties find it more cost-effective and administratively efficient to voluntarily register and collect the tax, rather than dealing with the maize of details related to various reporting obligations.
Remote sellers lacking the requisite nexus for the collection and remittance of sales tax in various states must constantly beware of changing laws generating use tax reporting requirements and how those requirements may impact their business. If you have any questions regarding use tax reporting obligations, you may want to consult with your state and local tax professional.