Washington – New Nexus: Economic Nexus $267,000 Threshold And Click Thru Nexus

SALT Report 3791 – Last year in September the Washington State Department of Revenue passed legislation revising the nexus standard for Wholesale sales and establishing a “click thru nexus” threshold. In combination with the elevated penalties for non-filing and negligence it is clear the department means business. We have seen a spike in the discovery process and requests for information coming from Washington’s discovery unit over the last few months.

New Nexus Standards for Wholesale B&O Tax – Effective September 1, 2015

Effective September 1, 2015, economic nexus standards apply to most out-of-state wholesaling businesses.  Physical presence nexus (i.e., property, payroll, solicitation of sales either directly or through an agent) is no longer the only standard in determining B&O tax.

Out-of-state businesses organized or commercially domiciled outside WA will be subject to the wholesaling B&O tax at the rate of 0.484% on sales delivered in the state if any of the following economic nexus thresholds (adjusted for calendar year 2015) are met during the prior calendar year:

  • gross receipts – more than $267,000 in WA state;
  • property – more than $53,000 in WA state;
  • payroll – more than $53,000 in WA state; or
  • at least 25% of the taxpayer’s total property, payroll or gross receipts in WA state.

In determining whether a wholesale business exceeds the gross receipts threshold of $267,000, both apportionable income attributable to Washington and wholesale sales delivered to Washington are to be included.

Presumption of Nexus for Click-Through Retail Transactions – Effective September 1, 2015

An out-of-state business will be presumed to have physical nexus in WA and be subject to both the retailing B&O tax and retail sales tax on sales delivered to WA if both apply:

  1. has agreements with Washington residents and pays a commission or other consideration for referrals via a website link or otherwise; and
  2. has more than $10,000 in sales into WA during the prior calendar due to these agreements.

The presumption may be rebutted by showing evidence that the in-state resident did not, and was prohibited from, engaging in solicitation on behalf of the out-of-state business.

Late Payment Penalty Increase – Effective August 1, 2015

Washington increased the rates at which late penalties are assessed if payment of taxes due on a return is not received by the due date. The rates are currently as follows:

  • One day after the due date to the last day of the month – 9%
  • First day of the second month following the due date to the last day of that month – 19%

First day of the third month and thereafter – 29%

With these changes, Washington elevated their discovery efforts and the Department has been contacting out of state companies in order to find out more information. Discovery can open lookback periods up to 10 years back and expose a taxpayer to burdensome penalties and interest.

For further Information:

http://dor.wa.gov/Content/GetAFormOrPublication/PublicationBySubject/TaxTopics/NexusStandards.aspx

http://dor.wa.gov/Content/GetAFormOrPublication/PublicationBySubject/TaxTopics/ClickThruNexus.aspx