Washington Second State to Tax Amazon-Like Marketplaces

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By Paul Shukovsky

Washington state lawmakers have passed a bill to expand online sales tax collection to online marketplaces like the home-state giant Amazon.

If Gov. Jay Inslee (D) signs the bill in the coming days, as expected, Washington will become only the second state to enact such a tax on online marketplace providers. He has supported so-called e-fairness bills in Congress in the past; three such bills are pending in the national capital this year, though none have formally moved.

Legislators were under the gun to pass the $43.7 billion biennial budget for 2017-19 and an accompanying revenue package or face a government shutdown that would have begun at midnight July 1. Inslee signed the budget bill into law just minutes before the midnight deadline, but expressed disappointment over the revenue package. His proposed capital gains tax had failed to gain traction and fellow Democrats were also disappointed that the Legislature didn’t pass a carbon tax.

“I think there are better revenue sources; we might be able to explore that in the future,” said Inslee, who also indicated he would sign a revenue-package bill that lowers the business and occupation tax rate for general manufacturing.

Second State

EHB 2163 requires that beginning Jan. 1, 2018, remote sellers; marketplace facilitators such as Amazon.com Inc.; and referrers with gross receipts sourced to Washington of at least $10,000 must either collect and remit sales or use tax or comply with notice and reporting requirements, which include informing consumers of their obligation to pay use tax. The definition of seller “includes marketplace facilitators, whether making sales in their own right or on behalf of marketplace sellers, and referrers.”

But marketplace facilitators and referrers are excused from liability for not collecting the correct sales or use tax if they can prove the failure resulted from incorrect information provided by an unaffiliated seller.

Rep. Kristine Lytton (D) told Bloomberg BNA June 29 that a key intent behind the new law is to ensure that companies like Amazon, which is headquartered in Seattle, take on the responsibility of collecting sales tax for third-party sellers. She emphasized that Amazon hadn’t expressed concern about the provision and reported that it had the software to do the job.

Google, however, did express concerns about the bill, Lytton said.

At least five other states have mulled plans this year to require marketplace providers to collect tax from third-party sales on their platforms. Minnesota, however, is the only state that has enacted such a law, and practitioners say it will likely face a legal challenge.

The Washington bill imposes penalties for notice violations that can range as high as $100,000 for sellers with in-state gross receipts of at least $300,000, plus an additional $20,000 for every $50,000 in gross receipts over $300,000.

The measure is expected to raise about $1 billion in new revenue over the next biennium, Sen. Reuven Carlyle (D) told Bloomberg BNA. June 29.

The bill passed the Senate late June 30 in a 33-16 vote. The House concurred with Senate amendments 51-42 late July 1.

Extending Boeing Break

Meanwhile, SSB 5977 extends to general manufacturers a preferential B&O tax rate that is enjoyed by in-state aerospace companies like The Boeing Co., which has its largest manufacturing operations in Washington. The rate will be reduced from .484 percent to .2904 percent incrementally over four years beginning Jan. 1, 2019.

Sen. Doug Ericksen (R) praised the bill during the late-night debate June 30.

“By lowering the rate, we can be competitive,” he said. “The important thing to remember is we have been bleeding manufacturing jobs in this state for decades. This is a small step to hopefully start to bring some of those jobs back.”

Ericksen—who served as President Donald Trump’s interim press officer at the Environmental Protection Agency—said refineries around his district on the northern shore of Puget Sound such as BP Plc and Shell would benefit from the reduced B&O rate.

Sen. Kevin Ranker (D)—whose district encompasses an archipelago of islands in the north Sound, where many people worry about oil spills killing endangered orca—called the bill “a series of loopholes for business.”

Sen. Michael Baumgartner (R) said: “If you gave the tax break to Boeing, you ought to give the tax break to the little guy as well.”

The measure passed 33-16 in the Senate and 83-10 in the House.

The Legislature is evenly split, with Democrats holding a narrow majority in the House and Republicans a narrow majority in the Senate.

To contact the reporter on this story: Paul Shukovsky in Seattle at PShukovsky@bna.com

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

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