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Tax Blog

Washington State Sales Tax for Online Businesses like Amazon

Pending the outcome of the threatened legal battle similar to the one when Colorado issued their new tax law, the sales tax on internet sales will look something complete similar to what Colorado has just this last year began to be able to collect.

The current rule throughout the United States is that you must collect sales tax on internet sales to customers in those states where your business has a physical presence. The physical presence rule is based on a 1992 Supreme Court decision in Quill Corp. v. North Dakota, which addressed the obligations of mail order businesses to collect sales tax on out-of-state sales. The decision was extended to include online retailers.

Physical presence means having:

  • a warehouse in the state

  • a store in the state

  • an office in the state, or

  • a sales representative in the state.

Examples of Physical Presence:

  • Example 1: You are an online retailer located in Savannah, Georgia and make a sale through your website to a customer in Bellevue, Washington—a state where your business has no physical presence: You are not required to collect sales tax from the Bellevue customer (except for sellers who fall under Washington’s Amazon law).

  • Example 2: You are an online retailer located in Yakima, Washington and make a sale through your website to a customer in Tacoma, Washington: You are required to collect sales tax from the Tacoma customer.

  • Example 3: After several years of operating solely out of a warehouse in Savannah, Georgia, you open a one-room satellite office just outside of Seattle, Washington—a state where previously you had no physical presence. A day later, you make a sale through your website to a customer in Spokane, Washington: You are required to collect sales tax from the Spokane customer.

The law in effect in Washington that started September 2015, added the provision covering remote seller nexus. Under this law, larger Internet sellers with no physical presence in the state are required to collect and pay Washington’s sales tax under certain conditions. Specifically, an out-of-state seller must collect sales tax from Washington customers if that seller:

  • has an agreement with a business or seller located in Washington to pay for customer referrals obtained via a link on the Washington seller’s website or otherwise (a click-through arrangement), and

  • the out-of-state seller’s cumulative gross receipts from these sales to Washington customers exceeds $10,000 during the preceding calendar year.

Similar laws have been enacted in other states; they are commonly referred to as Amazon Laws. As you might guess, the name refers to, which is a large, Internet-based retailer that does not have a physical presence in many states where it sells merchandise. Under the default physical presence rule, this type of seller would not have to collect sales tax from customers in states where it has no physical presence. Since most customers don’t pay the corresponding use tax, online sales by large online retailers like Amazon and constitute a significant lost tax revenue for many states. Amazon laws are enacted to try to reduce this loss.

The new law is codified at RCW 82.08.052 (the Revised Code of Washington or RCW). The DOR also has a web page explaining the details of the click-through nexus provision, including how out-of-state sellers might prove they are not subject to the provision.

Upon further research the modifications for the 2017 law states in RCW 82.04.067 Substantial nexus-Engaging in business; expands the reach of requiring online retailers wholesale or not to be required to collect sales tax on sales made. A recent decided case Stojak, T.R.O. – A company, that retails and wholesales custom glassware, tableware, lighting and home décor. Defined the codified rules that even though wholesale companies would pick up the product and move it to another state the quantified amount of sales required the company to assess sales tax. The new law simply expands the requirements of online retailers smaller then Amazon to collect their fair proportion of sales tax from customers making purchases.

Washington residents owe the state a “use tax” on many such purchases, but few people pay it. Stores with a physical presence in the state — such as Amazon — are already required to collect sales tax. Washington's plan would apply to online businesses grossing more than $10,000 a year in sales to Washington residents.

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