D.C. enacts remote seller sales tax provisions


Joel Waterfield
Metro DC - Arlington
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Guinevere Seaward
Metro DC - Arlington
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Chris Tran
Metro DC - Arlington
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Sonia Shaikh
Metro DC - Arlington
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Bella Kron
Metro DC - Arlington
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Jamie C. Yesnowitz
Washington, DC
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Chuck Jones
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Lori Stolly
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Metisse Lutz
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On Dec. 31, 2018, the District of Columbia enacted legislation requiring certain remote sellers and marketplace facilitators to collect and remit sales taxes.1 This legislation was passed in response to the U.S. Supreme Court’s South Dakota v. Wayfair, Inc. decision, a ruling that overturned the longstanding physical presence requirement for sales tax purposes in favor of an economic nexus standard.2 Pursuant to the District’s new legislation, effective Jan. 1, 2019, retailers without a physical presence are required to collect and remit sales taxes if they generate more than $100,000 of sales or complete at least 200 separate transactions in the District. In addition, the legislation clarifies the sales taxation of digital goods and includes marketplace facilitator provisions.

Remote seller nexus thresholds Effective Jan. 1, 2019, a vendor that does not have a physical presence in the District of Columbia who makes retail sales of tangible personal property, electronically transferred property,3 or services for delivery in the District must collect sales and use taxes if:

  • The vendor’s gross receipts from all retail sales of tangible personal property, electronically transferred property, and services delivered into the District exceed $100,000 during the current calendar year or the previous calendar year; or
  • The vendor sold tangible personal property, electronically transferred property, or services for delivery in the District in 200 or more separate transactions during the current calendar year or the previous calendar year.4

Taxpayers that satisfy one or both of these requirements will be required to “register and pay sales tax in the same manner and on the same form as all other retailers.”5 The legislation will not be enforced retroactively before the effective date of the legislation.6

Taxation of digital goods Effective Jan. 1, 2019, the legislation adds “the sale of or charges for digital goods” to the definition of “retail sale,” essentially subjecting digital goods to sales tax.7 In conjunction with this addition, the legislation defines the term “digital goods” to include “digital audiovisual works, digital audio works, digital books, digital codes, digital applications and games, and any otherwise taxable tangible personal property electronically or digitally delivered, whether electronically or digitally delivered, streamed, or accessed and whether purchased singly, by subscription, or in any other manner, including maintenance, updates and support.”8 The term dos not include cable, satellite or other television, video or radio service subject to the District’s gross receipts tax on such items, unless expressly included in the definition of “digital goods.” 9

Marketplace facilitators and sellers Effective April 1, 2019, the District’s new legislation will impose sales tax collection requirements on marketplace facilitators. The legislation defines a marketplace facilitator as any person who:

  • Lists, advertises, stores or processes orders for retail sales of tangible personal property, electronically transferred property, or services for delivery in the District on behalf of a marketplace seller 10
  • Directly or indirectly collects payment from a purchaser and remits payment to a marketplace seller, regardless of whether the facilitator is compensated for such services11

Under the legislation, marketplace facilitators are effectively considered to be third party intermediaries that provide a platform for sellers to list items available for sale, conduct retail transactions with customers on the sellers’ behalf, and remit collected payments to these sellers.

All retail transactions conducted through physical or electronic marketplaces provided by marketplace facilitators trigger a potential sales tax collection obligation. Specifically, under the amended definition of “vendor,” marketplace facilitators must collect sales taxes on retail sales of tangible personal property, electronically transferred property, or services for delivery to the District if they meet either one of the two economic nexus thresholds adopted in this legislation. 12

Direct dedication of revenue The D.C. Council initially passed a remote seller provision on Dec. 24, 2013, in anticipation of revenues generated by future changes to the taxation of online sales. The provision originally secured the reinvestment of those anticipated revenues into programs addressing homelessness and stable housing in the District. However, now that the anticipated Internet sales tax legislation has come to fruition, revenue generated from the bill instead will be used to reduce the commercial property tax rate from $1.89 per $100 of assessed value to $1.85 per $100 of assessed value on properties valued at more than $10 million.13

D.C. Councilmember Brianne Nadeau introduced an amendment intended to honor the D.C. Council’s original commitments contained in the 2013 legislation, arguing that the community’s well-being should not be subordinated to the interests of the District’s largest commercial properties.14 Councilmember Nadeau’s proposed change ultimately failed. The estimated $20.3 million of annual revenue generated by the bill is intended to compensate for the previously mentioned reduction in the commercial property tax rate.15

OTR notices The District’s Office of Tax and Revenue (OTR) has released two notices, one on the taxation of digital goods,16 and the other on the District’s response to the Wayfair case.17 In the first notice, which supersedes prior OTR Notice 2017-06, the OTR provides a chart showing the specific types of digital goods that are now subject to tax, including applications, various types of software, digital news and periodicals, digital books and audio books, digital music and video downloads and streaming. In the second notice, the OTR provides links to information related to tax registration, e-filing, and registration of corporations doing business in the District.

Commentary Many states have now adopted sales tax economic nexus standards in various forms. However, the District is the latest addition to the recent adopters of marketplace facilitator provisions. Other states with marketplace provisions include Alabama, Connecticut, Hawaii, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, Rhode Island, and Washington. The District’s push to pass this legislation at the end of 2018 reflected the possibility that these provisions were fast-tracked in order to secure revenue for the District as quickly as possible, at the higher 6% sales tax rate that went into effect on Oct. 1, 2018. Indeed, the District’s definition of “marketplace facilitators” is relatively brief in comparison to more detailed descriptions provided by other states.18

In any case, taxpayers should be cognizant of the variations in remote seller requirements for each state. South Dakota through Wayfair has provided a model for economic nexus laws, but it should not necessarily be considered a new “bright line” followed by every jurisdiction. Currently, many states have opted to replicate the thresholds in South Dakota’s legislation. However, some states will likely consider modifying the approved Wayfair model, depending in part on each state’s individual revenue targets, and on the size of each state’s market. Although South Dakota’s specific legislation follows the constitutional standards, there are no clear guidelines indicating when a threshold may be deemed unconstitutional. Furthermore, marketplace provisions still vary across states in terms of effective dates, definitions, and collection requirements. Additional states will likely continue to adopt their own marketplace provisions. Accordingly, multistate taxpayers should be sure to account for differences across jurisdictions in order to guarantee accurate compliance in such a dynamic and diverse legislative environment. 18 

1 Act 22-556 (D.C.B. 22-1070), Laws 2018.
2 138 S. Ct. 2080 (2018). For a discussion of this case, see GT SALT Alert: Wayfair ruling overturns Quill physical presence requirement.
3 Act 22-556, §§ 2, 3, amending D.C. CODE ANN. § 47-2001(n)(1).
4 D.C. CODE ANN. § 47-2001(w)(2)(A), (B); Act 22-556, § 2(b)(2)(G) amends D.C. CODE ANN. § 47-2001(w) to include a new paragraph (2) that expands the definition of “vendor” to include any person or retailer who does not have a physical presence in the District provided the person or retailer meets either one of the sales tax nexus requirements. In addition, Act 22-556, § 2(b)(2)(E) amends D.C. CODE ANN. § 47-2001(l) to include two new paragraphs (4) and (5) that expand the definition of “retailer” to include every marketplace facilitator and every marketplace seller.
5 Testimony of Jessica Brown, Assistant General Counsel for the Office of Tax and Revenue, for D.C.B. 22-914 (the predecessor bill to Act 22-556).
6 Id.
7 Act 22-556, § 2(b)(2)(F)(i)(IV), adding D.C. CODE ANN. § 47-2001(n)(1)(BB).
8 Act 22-556, § 2(b)(2)(A), adding D.C. CODE ANN. § 47-2001(d-1)(1).
9 Id.
10 A marketplace seller is a person making retail sales through a marketplace operated by a marketplace facilitator. Act 22-556, § 2(b)(2)(C), adding D.C. CODE ANN. § 47-2001(h). A marketplace is a physical or electronic place where a retail sale occurs. Act 22-556, § 2(b)(2)(C), adding D.C. CODE ANN. § 47-2001(g-4).
11 Act 22-556, § 2(b)(2)(C), adding D.C. CODE ANN. § 47-2001(g-5).
12 Act 22-556, § 2(b)(2)(G), amending D.C. CODE ANN. § 47-2001(w).
13 D.C. CODE ANN. § 47-812(b-9)(2)(D), (b-9)(2)(E) as amended by Act 22-556, § 2.
14 D.C.B. 22-914, Amendment 1.
15 Testimony of Jessica Brown, Assistant General Counsel for the Office of Tax and Revenue, for D.C.B. 22-914.
16 OTR Notice 2019-01, District of Columbia Office of Tax and Revenue, Jan. 2, 2019.
17 OTR Notice 2019-02, District of Columbia Office of Tax and Revenue, Jan. 2, 2019.
18 See, e.g., N.J. REV. STAT. § 54:32B-3.6(a). New Jersey’s legislation includes an extensive two-page list of nine operational activities and five collection or payment activities that qualify a marketplace facilitator, while the D.C. legislation provides its required criteria in a single sentence.

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