Last week, Oklahoma’s governor signed the “Oklahoma Retail Protection Act of 2016.” This law goes into effect on November 1, 2016 and has some repercussions even for out-of-state sellers.
To sum it up:
1.) Oklahoma has updated their sales tax nexus rules to be very clear that sellers utilizing a space or warehouse in the state (even if they don’t own it) have nexus
2.) Like Colorado, Oklahoma now requires out-of-state sellers who didn’t charge sales tax to Oklahoma buyers to send their Oklahoma buyers an annual statement, due February 1st, showing their total amount of non-taxed purchases. Unlike in Colorado, the seller is not required to also send this statement to the Oklahoma Tax Commission, so it is unclear how the state will enforce this section of the law.
3.) In an effort to encourage out-of-state sellers to collect sales tax from Oklahoma buyers, Oklahoma is promising not to seek payment of uncollected use tax from sellers who register to collect Oklahoma sales tax by May 1, 2017.
Read on for more about these three aspects of the new Oklahoma sales tax law.
Updated Oklahoma Sales Tax Nexus Rules
Following in line with other states, Oklahoma has now updated their definition of what factors create sales tax nexus in the state to include any business “utilizing or maintaining in this state, 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.”
While all states (with the notable exceptions of New York and Virginia) have shown, directly or indirectly, that “utilizing” a physical place of business in the state creates sales tax nexus, Oklahoma now spells it out. The law goes on to say:
“Any ruling, agreement or contract, whether written or oral, express or implied, between a person and executive branch of this state, or any other state agency or department, stating, agreeing or ruling that the person is not “maintaining a place of business in this state” or is not required to collect sales and use tax in this state despite the presence of a warehouse, distribution center or fulfillment center in this state that is owned or operated by the vendor or an affiliated person of the vendor shall be null and void unless it is specifically approved by a majority vote of each house of the Oklahoma Legislature.”
In layperson’s terms, the state is trying to cement exactly what creates nexus and is declaring anything that expressly goes against the law “null and void.”
New Reporting Requirement for Out-of-State Sellers
Oklahoma is also attempting to collect more use tax from in-state buyers but requiring out-of-state sellers to remind them of their “use tax” obligation.
Long story short, use tax is the tax that buyers are supposed to pay to the state when they buy a taxable item tax free because the sellers doesn’t have sales tax nexus in their state and thus doesn’t charge the tax. But most buyers are unaware that they need to pay use tax. Use tax is barely enforced.
A provision in the Oklahoma Retail Protection Act of 2016 instructs out-of-state sellers to provide their Oklahoma buyers with a statement of the total non-taxed sales made to them over the past calendar year. Much like a form 1099 or 1099-K, this form is due to Oklahoma buyers by February 1 of the following year. Here is sample language the state has put forward:
“YOU MAY OWE OKLAHOMA USE TAX ON PURCHASES YOU MADE FROM US DURING THE PREVIOUS TAX YEAR. THE AMOUNT OF TAX YOU MAY 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.”
The law also points out that the statement should not “indicate, imply or identify the class, type, description or name of the products purchased.”
Unlike a similar law that was just passed in Colorado, though, sellers are not required to provide the same information to the state Tax Commission. It is unclear how Oklahoma will enforce this law or know if retailers will follow it.
New Compliance Initiative
Like most states, Oklahoma would be thrilled if companies that do not have sales tax nexus in the state would collect sales tax from buyers in their state. They promise not to collect uncollected use tax from the seller as long as the seller registers by May 1, 2017. In other words, they will not go after the seller for use tax they didn’t collect before their registration date. (Note: In this case, Oklahoma is calling “use tax” sales tax collected by an out-of-state seller.)
In the meantime, according to an article in the Tulsa World, Oklahoma’s state tax commission spokeswoman Paula Ross has said that the state will reach out to the top 500 retailers not currently remitting sales tax in Oklahoma in order to work with them and get them sales tax compliant. Again, it isn’t clear how this will be enforced or how retailers with no nexus in the state could be persuaded to collect sales tax in the state.
So that sums up the Oklahoma Retail Protection Act of 2016. Do you have questions or something to say? Start the conversation in the comments or over at our Sales Tax for eCommerce Sellers Facebook Group.