In overriding the Kansas Governor’s veto, lawmakers reverse course to add a Wayfair threshold and adopt business income tax changes.
In an unexpected turn, Kansas lawmakers garnered the votes to override the governor’s veto on May 3, establishing an economic threshold and marketplace facilitator collection requirements, effective July 1, 2021, that is more aligned with the Wayfair requirements and in conformity with other states.
Back in March, Kansas lawmakers passed Senate Bill 50, adopting a remote seller nexus threshold and requiring marketplace facilitators to collect sales tax, along with a number of other business income tax changes. Gov. Laura Kelly vetoed the bill, which the Kansas legislature overrode on May 3, 2021.
Economic sales tax nexus
Since October 1, 2019, the Kansas Department of Revenue has required businesses with any sales—even if it is just one sale—to comply with Notice 19-04, Sales Tax Requirements for Retailers Doing Business in Kansas. Under the rule, businesses that did not otherwise have a physical presence, but sold to at least one Kansas customer, were required to collect the sales and use tax on the next sale to a Kansan.
Kansas did not provide a small seller threshold consistent with the standards of economic nexus set by the U.S. Supreme Court decision in Wayfair. All sellers, regardless of the number of transactions or dollar amount, were subject to enforcement for sales into Kansas.
Marketplace facilitators were given a bye in the notice and not required to collect. This put a tremendous burden on small and large taxpayers. Those that sold through FBA’s or other marketplaces still had the burden of registering, collecting and separately remitting Kansas sales taxes.
Small seller exemption
With an economic nexus threshold, Kansas falls more in line with Wayfair and other states. Beginning July 1, 2021, Kansas will have a $100,000 sales threshold to determine whether a remote seller is doing business in the state. Remote sellers that exceed the threshold in the preceding calendar year, or the current calendar year (2021), must collect and remit the tax on sales over the threshold beginning July 1.
Marketplace facilitators also must pony up by collecting sales tax, beginning on July 1, 2021, on sales and services exceeding $100,000. Marketplace facilitators include a person that contracts or agrees with marketplace sellers to facilitate the sale of the seller’s products or rooms, lodgings or accommodations through a physical or electronic marketplace operated, owned or otherwise controlled by the facilitator and collects the payment from the purchaser and transmits all or part of the payment to the marketplace seller. Advertising services, payment processing services, and certain commodity futures trading are excluded.
Marketplace facilitators also are responsible for collecting and remitting local transient guest taxes beginning Jan. 1, 2022 and certain prepaid wireless 911 fees beginning April 1, 2022. The lodging and wireless taxes are a new wrinkle that we have not seen other states address in conjunction with Wayfair issues and are, thus, another differentiation specific to Kansas.
Senate Bill 50 also eliminates the state’s ‘click-through nexus’ provision and decouples the state from the federal Tax Cuts and Jobs Act business interest provision beginning in 2021, among other business income tax provisions.
These are significant changes for all business selling to Kansas customers or otherwise operating in Kansas. Businesses not already registered in Kansas, whether in or out-of-state, should consider whether there is a value in understanding exposure and existing risk with a state and local tax provider before registering to collect sales tax in the state.
In addition, all businesses operating in Kansas should work with their tax provider to incorporate these income tax changes into their returns. TaxOps State and Local Tax team distinguishes itself by staying on top of these issues. Feel free to reach out if you have questions or concerns.