Kansas Bill Would Impose Tax Reporting Duties on E-Retailers

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By Christopher Brown

The Kansas Senate will consider a bill that would require remote retailers to to either collect Kansas sales tax or report remote sales to the Department of Revenue.

S.B. 111 also would require retailers to notify Kansas buyers of their use tax obligations. It is modeled on a Colorado law that received the implicit approval of the U.S. Supreme Court when it turned down an appeal challenging the law late last year ( Direct Mktg. Ass’n v Brohl, U.S., No. 16-267, petition for certiorari denied 12/12/16 ; Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, petition for certiorari denied 12/12/16 ).

The Senate Assessment and Taxation Committee will hold a hearing on the bill Feb. 8.

The bill has a good chance of passing during 2017, Sen. Jim Denning (R), a committee member, told Bloomberg BNA.

“This is a politically safe vote, because this tax is already on the books—it’s something that people are supposed to be paying, even if compliance is very low,” he said. “And when you look into people at the ground level, rural folks want tax revenue to support their local communities, and the cities and towns want to protect their retailers. Everyone I’ve talked to is possible about us getting it introduced and having a hearing.”

Growing Interest.

Similar notice and reporting bills have been introduced this year in Arkansas, Hawaii, Nebraska and Utah amid a surge of interest among lawmakers in capturing lost revenue from untaxed remote sales. Alabama already has announced plans to introduce a similar bill.

Meanwhile, lawmakers in at least 14 states have joined the recent surge in state activity in this area by introducing bills that would require remote sellers with a certain amount of sales in the state, typically $100,000 or more, to collect sales tax. These “economic nexus” bills are aimed at the U.S. Supreme Court ruling in Quill Corp. V. North Dakota, 504 U.S. 298 (1992), where the court prohibited states form requiring sellers without a physical presence in a state to collect its sales and use tax.

S.B. 111 was introduced Feb. 1 by the Senate Committee on Assessment and Taxation. No bill addressing taxation of remote sales has yet been introduced in the House.

Level Playing Field

Denning said his goal was to “level the playing field” between online retailers and brick-and-mortar retailers in the state.

“We’ve been following the Colorado law since they passed it 5 years ago or so, and when the Supreme Court kicked the lawsuit back, it cleared the way for a lot of states to follow their lead,” Denning said.

S.B. 111 requires online retailers who don’t collect and remit sales tax on purchases shipped to Kansas to prepare a statement for their Kansas customers of all their untaxed sales, “kind of like a 1099 form,” he said. It also would give them instructions on how to calculate their tax and report it when they file their taxes.

Not About Revenue?

But the goal isn’t to burden the individual taxpayer, far less to create the threat of audits for those who don’t pay taxes on those sales even after receiving the forms from the online retailers, Denning said.

“In a nutshell, what we’re trying to do is so much red tape on the sellers that they will go ahead and collect the tax,” he said. “Because once they face this, they’ll realize that it’s cheaper for them to collect the tax and remit it.”

Denning also denied that his purpose was to increase state revenue, despite the state’s current and ongoing budget woes.

“I’m much more interested in leveling the playing field with this bill,” he said. “It’s a question of fairness.”

Revenue Impact Unclear

According to a 2012 estimate from the National Council of State Legislatures, Kansas’s annual revenue loss due to uncollected use tax was almost $280 million. Gov. Sam Brownback (R) was forced to make over a round of budget cuts and funds transfers earlier in January to address a projected $350 million budget shortfall for the current fiscal year.

The actual revenue impact of the bill is unclear, however. Denning noted that Amazon.com Inc., the largest online seller, has long had a physical presence in the state, and has already been collecting and remitting state and local sales taxes.

“It will be interesting to see what the fiscal note tells us,” he said. A fiscal note should be available by the time of the committee’s hearing on the bill, he said.

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of S.B. 111 is at http://src.bna.com/lTg

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