Oklahoma ~ Sales and Use Tax: Nexus, Out-of-State Vendor Compliance, Use Tax Notice Changes Enacted

Oklahoma Gov. Mary Fallin has signed legislation enacting the Oklahoma Retail Protection Act of 2016, legislation concerning sales and use tax parity and nexus. The changes contained in the legislation take effect on November 1, 2016.

Nexus

The legislation amends the definition of “maintaining a place of business in this state” as rebuttably presumed to include (1) utilizing or maintaining in Oklahoma (directly or by subsidiary) an office, distribution house, sales house, warehouse, or other physical place of business, whether owned or operated by the vendor or any other person (other than a common carrier acting in its capacity as such), or having agents operating in Oklahoma, whether the place of business or agent is within the state temporarily or permanently or whether the person or agent is authorized to do business in the state; and (b) the presence of any person (other than a common carrier acting in its capacity as such) who has substantial nexus in Oklahoma and who:

(1) sells a similar line of products as the vendor under the same or a similar business name;

(2) uses trademarks, service marks, or trade names in Oklahoma that are the same or substantially similar to those used by the vendor;

(3) delivers, installs, assembles, or performs maintenance services for the vendor;

(4) facilitates the vendor’s delivery of property to customers in the state by permitting the vendor’s customers to pick up property sold by the vendor at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Oklahoma; or

(5) conducts any other activities in Oklahoma that are significantly associated with the vendor’s ability to establish and maintain a market in the state for the vendor’s sale.

The presumption is rebuttable by showing that the person’s activities in Oklahoma are not significantly associated with the vendor’s ability to establish and maintain a market in the state for the vendor’s sales. Finally, any ruling, agreement, or contract (regardless of whether written or oral, or express or implied) between a person and the executive branch of Oklahoma, or any other state agency or department, that states, agrees, or rules that the person is not “maintaining a place of business in this state” or is not required to collect sales and use tax in Oklahoma despite the presence of a warehouse, distribution center, or fulfillment center in the state that is owned or operated by the vendor or an affiliated person of the vendor, is null and void unless specifically approved by a majority vote of each house of the Oklahoma Legislature.

In addition to adding the five affiliate nexus provisions above, the legislation removes the following affiliate nexus criteria from the use tax code: (1) the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a retailer maintaining a place of business within the state and the retailer sells the same or a substantially similar line of products as the related Oklahoma retailer and does so under the same or a substantially similar business name, or the Oklahoma facilities or Oklahoma employees of the related Oklahoma retailer are used to advertise, promote or facilitate sales by the retailer to consumers; (2) the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a business that maintains a distribution house, sales house, warehouse or similar place of business in Oklahoma that delivers property sold by the retailer to consumers; or (3) a retailer is part of a “controlled group of corporations” (as defined in I.R.C. §1563(a)) having a “component member” (as defined in I.R.C. §1563(b)) that is a retailer engaged in business in Oklahoma.

Finally, the use tax code is amended no longer provide that a “retailer” includes making sales of tangible personal property to purchasers in Oklahoma by mail, telephone, the Internet, or other media who has contracted with an entity to provide and perform installation or maintenance services for the retailer’s purchasers in Oklahoma. The use tax code is also amended to no longer state that he processing of orders electronically (including by facsimile, telephone, the Internet, or other electronic means) does not relieve a retailer of the duty to collect tax from the purchaser if the retailer is doing business in Oklahoma.

Retailer Compliance Initiatives

The legislation expands the state’s out-of-state retailer use tax registration, collection, and remittance compliance initiatives to also apply with respect to sales tax. Under the initiative as amended, the Oklahoma Tax Commission will not seek payment of uncollected use taxes from an out-of-state retailer who registers to collect and remit applicable sales and use taxes on sales made to purchasers in Oklahoma prior to registration under the initiative, provided that the retailer was not registered in Oklahoma in the 12-month period preceding November 1, 2016. Other changes concerning the compliance initiatives include the removal of provisions (1) prohibiting an out-of-state retailer’s registration to collect use tax under the initiative as a factor in determining nexus for other Oklahoma taxes, (2) allowing out-of-state retailers registering under the initiative a vendor discount for timely reporting and remittance of use tax, and (3) prohibiting the charging of a registration fee against an out-of-state retailer who voluntarily registers to collect and remit use tax under the initiative. Finally, the legislation precludes assessments for uncollected sales and use taxes (including penalties and interest) for sales made during the period a retailer was not registered in Oklahoma, so long as registration occurs before May 1, 2017.

The Oklahoma Tax Commission will implement an outreach program under which Internet and out-of-state retailers will be contacted for a review of their business activities to determine if their activities require the registration and collection of Oklahoma use taxes. The Commission will also provide these retailers information under the program.

Annual Use Tax Notice Requirements

Out-of-state retailers who are not required to collect Oklahoma use tax and who make sales of tangible personal property delivered to Oklahoma customers for use in the state, must, by February 1st of each year, provide each of these customers a statement of the total sales made to them during the preceding calendar year. The statement must contain language substantially similar to: “You may owe Oklahoma use tax on purchases you made from us during the previous tax year. The amount of tax you owe is based on the total sales price of [insert total sales price] that must be reported and paid when you file your Oklahoma income tax return unless you have already paid the tax.” For reasons of confidentiality, the statement cannot contain any other information that would indicate, imply, or identify the class, type, description, or name of the products sold.

H.B. 2531, Laws 2016, effective as noted

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Wolters Kluwer TAA

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