Earlier this year, Kansas shed its distinction of being one of the last states to not impose economic nexus standards on remote sellers and marketplace facilitators. The new law, effective July 1, 2021, imposes a tax collection requirement on remote sellers and marketplace facilitators when their sales into Kansas exceed $100,000 in the current or preceding calendar year. The Kansas Department of Revenue (“Department”) recently published additional guidance for both remote sellers and marketplace facilitators on this new law, Notices 21-17 and 21-14, respectively. Unfortunately, when taken together, it’s both clear and confusing.
First, let’s get to the good news. The Department has made it clear that because the new law wasn’t effective until July 1st, there can be no lookback to the calendar year 2020 to determine if a remote seller or marketplace facilitator should be registered for the Kansas sales tax beginning on July 1st. In other words, the Department is only looking at the calendar year 2021 sales and forward to determine if a registration requirement exists. Unfortunately, there are many other states that did not take this approach. In Wisconsin for example, their economic nexus law went into effect October 1, 2018, only a few months after the Wayfair decision. Administratively, the Wisconsin Department of Revenue maintains that since they have a “prior or current calendar year” measurement period, it is entitled to examine 2017 sales to determine if there was a registration requirement beginning October 1, 2018.
However, these notices also offer conflicting and incohesive guidance in other areas. For example, both notices specify that the $100,000 de minimis threshold is based on “cumulative gross receipts.” For remote sellers, that means gross revenue from sales of all goods and services but for marketplace facilitators, the threshold is based only on taxable sales. Why is there a distinction in the first place? Even more so, what if a retailer is both a marketplace facilitator of other sellers’ products and a remote seller of its own goods? Notice 21-14 specifically states that “[f]or purposes of calculating the de minimis threshold for marketplace facilitators, “cumulative gross receipts” includes both the marketplace facilitator’s sales of its own property and services and the sales it facilitates on its platform.” Taken together, it would appear to mean that the facilitator would count its gross revenue from sales of its own goods and services, but only its taxable revenue for its facilitated sales. The recordkeeping and documentation requirements are onerous at best.
Speaking of onerous recordkeeping and documentation, Notice 21-14 provides that the Department can waive the collection obligation of marketplace facilitators only if the facilitator can show that “substantially all” (i.e., at least 95%) of the marketplace sellers are already collecting and remitting all applicable taxes. What is acceptable documentation here? Would the Department require the facilitator to gather copies of all registration permits from the marketplace sellers? Even that really doesn’t satisfy the requirement though, because a marketplace seller could be registered with Kansas but only filing a zero return (i.e., not collecting and remitting tax). It would appear then that the marketplace facilitator would have to request and gather copies of transactional data and/or invoices to show collection and the seller’s returns to show remittance. To further complicate that, what if those marketplace sellers also make direct sales of their own goods? Maybe they are collecting and remitting tax on their direct sales but leaving it to the marketplace facilitator to collect and remit tax on any of the facilitated sales. That is going to require a lot of additional analysis that the facilitators likely don’t want to be involved with. Quite simply, it would appear, based on these waiver requirements and open questions that the requirements themselves raise, that the Department is betting that it won’t have to grant any waivers. Time will tell though.
By Brian Hollingsworth, CPA