Oklahoma Enacts Sales and Use Tax Remote Seller Rebuttable Nexus Presumption and Use Tax Notification Provisions
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On May 17, 2016, Oklahoma Governor Mary Fallin (R) signed into law the Oklahoma Retail Protection Act of 2016, H.B. 2531, 55th Leg., 2d Reg. Sess. (Okla. 2016) (“H.B. 2531”), which subjects remote sellers to a sales and use tax nexus rebuttable presumption and a use tax notification requirement. In addition, H.B. 2531 directs the Tax Commission to implement voluntary disclosure and compliance outreach programs, and voids certain rulings and agreements that specify a vendor is not subject to tax. The provisions enacted under H.B. 2531 become effective on November 1, 2016.
Sales and Use Tax Nexus Rebuttable Presumption
H.B. 2531 amends the definition of “maintaining a place of business in this state” to create a rebuttable presumption that a vendor has nexus with the state for sales and use tax purposes if:
- The vendor is, directly or by subsidiary, utilizing or maintaining an in-state office, distribution house, sales house, warehouse, or other place of business owned or operated by an individual or entity (other than a common carrier) who is not the vendor;
- The vendor has an agent operating in the state, even on a temporary basis; or
- An individual or entity has substantial nexus in Oklahoma, and:
- Sells a similar line of products as the vendor under the same or a similar business name;
- Uses trademarks, service marks, or trade names in the state that are the same or substantially similar to those used by the vendor;
- Delivers, installs, assembles, or performs maintenance services for the vendor,
- Facilitates the vendor's delivery of property to customers in the state by allowing the vendor's customers to pick up property sold by the vendor at an in-state office, distribution facility, warehouse, storage place, or similar place of business maintained by the individual or entity; or
- Conducts any other activities in the state that are significantly associated with the vendor's ability to establish and maintain a market for the vendor's sales.
A vendor may rebut a presumption of nexus by demonstrating that an individual’s or entity’s activity in the state is not significantly associated with the vendor’s ability to establish or maintain a market in the state.
Prior to the enactment of H.B. 2531, this definition was not a rebuttable presumption and its application was limited to maintaining, directly or by subsidiary, an office, distribution house, sales house, warehouse, other place of business in the state, or having agents operating in the state. Also, for use tax purposes, the definition of “retailer” contained language similar to what is now under the definition of “maintaining a place of business in this state,” and contained a presumption of nexus that pertained to a retailer that is a member of a “controlled group.” As a result of the enactment of H.B. 2531, such language has been struck from the definition.
Use Tax Notification Requirement
H.B. 2531 requires a remote retailer or vendor that is not required to collect use tax to provide notification by February 1 of each year to an Oklahoma customer to whom tangible property was delivered during the preceding calendar year that the he or she may owe use tax on the purchase, and, if so, to report and pay it with his or her Oklahoma income tax return. Notification may be done by mail, email, or other electronic communication.
Out-of-State Retailer Voluntary Disclosure Program
H.B. 2531 directs the Tax Commission to create a voluntary disclosure program for out-of-state retailers that were not registered in the state in the 12-month period preceding November 1, 2016, that register prior to May 1, 2017. Under the program, the Tax Commission may not collect sales and use tax, or penalty or interest, from a participating out-of-state retailer on sales made prior to registration.
H.B. 2531 does not extend relief to sales and use taxes due from the out-of-state retailer in its capacity as a buyer. In addition, an out-of-state retailer is precluded from participating in the program if it has received notice of commencement of an audit that is not yet finally resolved.
H.B. 2531 requires the Tax Commission to implement an outreach program, the purpose of which is to improve compliance of out-of-state retailers, including Internet retailers, “maintaining a place of business in this state.” Under the program, the Tax Commission must contact retailers for a review of their business activities to determine whether or not such activities require the registration and collection of use tax.
Void Rulings and Agreements
H.B. 2531 voids any ruling, agreement, or contract under which the vendor is not required to collect tax despite the presence of a warehouse, distribution center, or fulfillment center in the state that is owned or operated by the vendor or an affiliated individual or entity, unless it is specifically approved by a majority vote of each house of the Oklahoma legislature. This provision was added to the definition of “maintaining a place of business in this state.”
- A vendor that may have nexus in Oklahoma by reason of the enactment of H.B. 2531 should assess whether or not it should register, and begin collecting and reporting for sales and use tax purposes starting November 1, 2016. A vendor with a ruling, agreement, or contract under which it is not required to collect tax should consider reviewing the ruling, agreement or contract, and make a similar assessment.
- A vendor that may have nexus in Oklahoma that is not registered for sales and use tax purposes, and has not received a notice of commencement of an audit should assess whether or not it may benefit from participating in the voluntary disclosure program the Tax Commission is required to implement under H.B. 2531.
- A vendor that may be subject to the new use tax notification requirement should consider whether it is necessary to implement the systems necessary to comply with first notification due date on February 1, 2017. It should be noted that while a vendor must typically have a physical presence in a state to be subject to a sales and use tax collection requirement, the U.S. Supreme Court in Direct Marketing Association v. Brohl upheld the imposition of Colorado’s use tax notification requirement on an out-of-state vendor that lacked a physical presence in the state.
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