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Washington revises nexus standards for remote sellers, marketplace facilitators

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On March 14, 2019, Washington Gov. Jay Inslee signed legislation simplifying the state’s economic nexus provisions for out-of-state sellers and marketplace facilitators without a physical presence in the state.1 The new law removes the state’s 200-transaction threshold for purposes of determining retail sales tax collection requirements, leaving in place only the $100,000 sales threshold; eliminates the option for remote sellers and marketplace facilitators to comply with notice and reporting requirements; reduces the annual sales threshold for purposes of the Business and Occupation (B&O) tax to $100,000, while eliminating the property and payroll thresholds; and eliminates the state’s click-through nexus provisions.

Background Prior to the U.S. Supreme Court’s decision in South Dakota v. Wayfair,1 Washington enacted marketplace facilitator rules that became effective Jan. 1, 2018.3 Under these rules, remote sellers,4 marketplace facilitators5 and referrers6 meeting certain statutory criteria were required to either collect and remit retail sales tax or comply with notice and reporting requirements.7 The collection and reporting requirements applied to remote sellers or marketplace facilitators having Washington sourced gross receipts of at least $10,000 during the current or immediately preceding calendar year. 8

In the Wayfair decision, the Court rejected the physical presence requirement for purposes of sales and use tax nexus, finding that South Dakota’s economic nexus statute satisfied the substantial nexus standard under the U.S. Constitution. Soon after the Wayfair decision, Washington adopted an economic nexus standard for retail sales tax consistent with South Dakota’s economic nexus provisions that were sustained by the Court. Under these added provisions, remote sellers having more than $100,000 in Washington annual gross retail sales or 200 separate transactions in the state in the current or prior calendar year were required to collect and remit retail sales tax from Washington customers.9 These thresholds became effective Oct. 1, 2018.

In addition to the retail sales tax, Washington imposes a gross receipts-based B&O tax. Several years prior to Wayfair, Washington adopted an economic nexus threshold test for out-of-state businesses engaging in business in Washington. For the 2013-2017 tax years, a nonresident business created economic nexus and a B&O tax filing obligation if the business had more than $53,000 in property or payroll in the state; had more than $267,000 in gross receipts in the state; or at least 25% of the business’s total property, payroll or receipts were in Washington during the current or immediately preceding calendar year.10 For the 2018 tax year, the payroll and property thresholds were increased to $57,000 and the sales threshold to $285,000.11

Simplified economic nexus rules The newly enacted legislation is designed to simplify Washington’s current economic nexus provisions in a number of ways. The new rules impact both the state’s retail sales tax and B&O tax.

Retail sales tax The economic nexus law implements important revised provisions pertaining to marketplace facilitators, bringing such vendors under the same collection requirements as remote sellers.12 Effective July 1, 2019, the term “seller” is revised to include marketplace facilitators,13 whether making sales in their own right or facilitating sales on behalf of marketplace sellers.14 The definitions and underlying concepts of a “marketplace facilitator” and “marketplace seller” remain largely the same, and references to the term “referrer” are removed under the new law.

Most notably, the legislation eliminates the 200-transaction threshold from Washington’s economic nexus standard for purposes of the retail sales tax, in addition to amending the way in which the $100,000 sales threshold is calculated.15 Effective March 14, 2019, remote sellers or marketplace facilitators are deemed to have economic nexus with Washington for retail sales tax purposes when, in the current or previous calendar year, they have more than $100,000 in cumulative gross receipts from retail sales in Washington.16 Through Dec. 31, 2019, the $100,000 gross receipts threshold applies to all retail sales sourced to Washington, including sales made through a marketplace facilitator.17 However, effective Jan. 1, 2020, the gross receipts threshold will instead be based on all gross income attributed to Washington instead of gross receipts from retail sales.18 For marketplace facilitators, gross receipts include gross proceeds from the facilitator’s own sales into Washington and gross proceeds from a marketplace seller’s sales into Washington through the facilitator’s marketplace, regardless of whether the marketplace sellers have nexus with Washington.19

In an effort to further simplify the retail sales tax landscape for remote sellers, the new measure removes the election to comply with notice and reporting requirements instead of collecting and remitting retail sales tax, effective July 1, 2019.20 The legislation also eliminates the $10,000 sales threshold for remote sellers and marketplace facilitators, leaving the $100,000 sales threshold as the sole determination for economic nexus.21 This change is also effective on July 1, 2019.

Similar to other states proposing marketplace bills in response to Wayfair, Washington’s new law requires marketplace facilitators to collect and remit retail sales tax on all taxable retail sales made or facilitated by the marketplace facilitator, whether in its own right or as an agent of the marketplace seller, regardless of whether the marketplace seller is subject to a tax collection obligation.22 This provision is retroactive to Oct. 1, 2018. Additionally, beginning on Jan. 1, 2020, marketplace facilitators having nexus with Washington will be required to collect and remit all other transaction taxes and fees on their third-party sales. 23

Finally, the enacted legislation repeals Washington’s click-through nexus provisions. Originally enacted in 2015, these rules required remote sellers to collect and remit sales tax if: (i) the remote seller entered into an agreement with Washington residents and paid a commission for referrals to the remote seller; and (ii) the cumulative gross receipts from such referrals exceeded $10,000 during the preceding calendar year.24 The click-through nexus rules are eliminated effective March 14, 2019.

B&O tax The new law also implements several changes with respect to Washington’s existing B&O tax economic nexus standards. First, effective Jan. 1, 2020, the sales threshold for B&O tax purposes is reduced from $285,000 in gross receipts from retail sales in Washington to $100,000 in cumulative gross income attributed to Washington, bringing this threshold in line with the state’s sales threshold for retail sales tax purposes.25 In addition, the $53,000 property and payroll thresholds are eliminated for purposes of the B&O tax, along with the standard establishing nexus if a business has at least 25% of total payroll, property or sales in the state. 26

Commentary Washington’s revision of its retail sales tax economic nexus thresholds continues a growing trend among states to jettison the separate transaction threshold in favor of a single receipts threshold. Beginning in 2020, Washington has also revised its measurement of the $100,000 sales threshold to include cumulative gross income from the immediately preceding calendar year, instead of merely gross income from retail sales. As one of the first states to implement use tax notice and reporting requirements for non-collecting sellers before Wayfair, Washington has also joined other states in removing this option, with notice and reporting requirements becoming increasingly moot in light of the Court’s approval of an economic nexus standard in Wayfair.

While Washington already had an economic nexus standard in place for B&O tax before Wayfair, it has reduced the current $285,000 sales threshold to $100,000 in Washington cumulative gross receipts, matching the South Dakota sales threshold upheld in Wayfair. Emboldened by the Court’s decision, Washington joins a handful of jurisdictions that are moving to enact economic nexus provisions for income or gross receipts taxes or to amend already existing standards. 

The enactment of Washington’s initial marketplace fairness law imposing collection and reporting requirements, coupled with a subsequent administrative pronouncement in light of the Wayfair decision, presented much confusion for both remote sellers and marketplace facilitators making sales to Washington customers. The newly enacted legislation represents a welcome change for such vendors in that it applies Washington’s economic nexus provisions consistently to different out-of-state businesses selling into Washington. Further, the new provisions seek to streamline Washington’s economic nexus thresholds with respect to both retail sales tax and B&O tax. For example, under current B&O tax provisions, a remote seller with $200,000 in annual Washington gross receipts would have created retail sales tax nexus but not B&O tax nexus with Washington. Under the new law, the same seller would be subject to both retail sales tax and B&O tax filing obligations, having exceeded the single $100,000 gross receipts nexus threshold that now applies to both tax types.



1 S.B. 5581, Laws 2019.
2 138 S. Ct. 2080 (2018).
3 WASH. REV. CODE § 82.08.053 (repealed effective July 1, 2019). For a further discussion of these rules, see GT SALT Alert: Washington Imposes Collection and Remittance, Notice and Reporting Requirements on Marketplace Facilitators (July 27, 2017).
4 A “remote seller” is any seller who does not have a physical presence in Washington and makes retail sales to Washington purchasers. WASH. REV. CODE § 82.13.010(10). Effective July 1, 2019, the definition of a remote seller is amended to include marketplace facilitators. WASH REV. CODE § 82.08.010(17).
5 A “marketplace facilitator” is defined as a person that contracts with sellers to facilitate the sale of the seller’s products through a catalog or a physical or electronic marketplace that the facilitator operates, and engages through affiliates, in at least one of a series of enumerated intermediary activities between buyers and sellers, and at least one of a series of seller-side activities that facilitate transactions within the marketplace. WASH. REV. CODE § 82.13.010(3).
6 A “referrer” is defined as a person who contracts or otherwise agrees with a seller to list or advertise for sale items in any medium; receives a commission, fee or other consideration from a seller for listing or advertising; transfers a potential purchaser to a seller or affiliated person to complete the sale; and does not collect receipts from the purchasers for the transaction. WASH. REV. CODE § 82.13.010(9) (repealed effective July 1, 2019).
7 WASH. REV. CODE §§ 82.08.053(1)(a); 82.13.020 (repealed effective July 1, 2019).
8 WASH. REV. CODE § 82.08.053(2).
9 WASH. ADMIN. CODE §§ 458-20-193; 458-20-221; Marketplace Fairness – Leveling the Playing Field, Washington Department of Revenue, Aug. 3, 2018.
10 WASH. REV. CODE § 82.04.067(1).
11 Annual changes to the sales, property and payroll thresholds for B&O tax purposes were tied to cumulative percentage changes in the consumer price index. Excise Tax Advisory 3195.2018, Economic Nexus Minimum Thresholds, Washington Department of Revenue, Dec. 20, 2018.
12 S.B. 5581, Laws 2019, Sec. 105, amending WASH REV. CODE § 82.08.010(2)(a).
13 The definition of “marketplace facilitator” is slightly changed to include a person that:
    1) Contracts with sellers to facilitate for consideration the sale of the seller’s products through a marketplace owned or operated by another person;
    2) Engages directly or indirectly, through one or more affiliated persons, in transmitting or otherwise communicating the offer or acceptance between the buyer and seller; and
    3) Engages directly or indirectly, through one or more affiliated persons, in certain specified activities with respect to the seller’s products. Sec. 105, amending WASH. REV. CODE § 82.08.010(15)(a).
14 A “marketplace seller” is any seller that makes retail sales through any marketplace operated by a marketplace facilitator, regardless of whether the seller is required to be registered with the Washington Department of Revenue. Sec. 105, amending WASH. REV. CODE § 82.08.010(16).
15 Sec. 102, amending WASH. REV. CODE § 82.04.067(1); Sec. 106, amending WASH. REV. CODE § 82.08.052(1).
16 Sec. 102, amending WASH. REV. CODE § 82.04.067(1)(c).
17 Sec. 106, amending WASH. REV. CODE § 82.08.052(1)(a).
18 Sec. 102, amending WASH. REV. CODE § 82.04.067(1)(c)(i), (2)(a).
19 Sec. 102, amending WASH. REV. CODE § 82.04.067(2)(b).
20 Sec. 301, repealing WASH REV. CODE § 82.13.020 (effective July 1, 2019).
21 Sec. 301, repealing WASH. REV. CODE § 82.08.053 (effective July 1, 2019).
22 Sec. 201, amending WASH. REV. CODE § 82.08.0531(2).
23 Sec. 201, amending WASH. REV. CODE § 82.08.0531(2).
24 Sec. 106, amending WASH. REV. CODE § 82.08.052(1) (effective March 14, 2019).
25 Sec. 102, amending WASH. REV. CODE § 82.04.067(1)(c).
26 Sec. 102, amending WASH. REV. CODE § 82.04.067(1)(c).



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