Kansas Takes Action on Wayfair Decision | Missouri Enacts Senate Bill 87

Thoughtware Alert Published: Oct 10, 2019
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Kansas’ Response to Wayfair Decision

The Kansas Department of Revenue (Department) issued Notice 19-04, “Sales Tax Requirements for Retailers Doing Business in Kansas,” regarding the state’s position on the recently litigated South Dakota v. Wayfair, Inc. (Wayfair). This notice indicated all remote sellers directing activity at Kansas would be required to collect and remit sales tax, regardless of sales level. Since the notice’s issuance, Kansas Attorney General (AG) Derek Schmidt issued an opinion concluding the notice’s requirement for all remote sellers to register and begin collecting and remitting was unlawful.

The Kansas AG’s opinion, issued September 30, 2019, indicated Notice 19-04 to be conflicting with Wayfair and without any force of law without proper adoption under the state’s normal procedures. Regardless, Kansas Gov. Laura Kelly announced her support of the action taken by the Department in a press release on October 1, 2019. Department Secretary Mark Burghart has indicated the Department will enforce Notice 19-04 unless directed otherwise by a court.

The notice cites K.S.A. 79-3702(h)(1)(F), which provides that a retailer doing business in Kansas means:

“Any retailer who has any other contact with this state that would allow this state to require the retailer to collect and remit tax under the provisions of the constitution and laws of the United States.”

While other states passed new legislation creating new statutes or amending current ones, Kansas is relying on current statutes to enforce remote sellers to register. The notice states that remote sellers who aren’t already registered with the Department must register and begin collecting and remitting Kansas sales or use taxes by October 1, 2019. Unlike other states, Kansas didn’t state a threshold in dollars or number of transactions. With this published guidance, Kansas is the first state to adopt economic sales tax nexus without a small-seller exemption or similar safe harbor. It wouldn’t be unexpected for Kansas to face a U.S. constitutional challenge under the due process clause. The notice does state that the Department won’t enforce the collection requirements on remote sellers for sales made into the state prior to October 1, 2019.

Marketplace Facilitators in Kansas

Not only has Kansas taken a stance on remote sellers, but marketplace facilitators also have been addressed. Per K.S.A. 79-3602(z), Kansas defines the word “person” to include “any individual, firm, copartnership, joint adventure, association, corporation, estate or trust, receiver or trustee, or any group or combination acting as a unit, and the plural as well as the singular number.”

Per the notice, a marketplace facilitator is a person who, through an agreement with the retailer, facilitates sales by such retailer through a physical or electronic marketplace operated by the person and:

1. Engages directly or indirectly, through one or more affiliated persons in any of the following:

  • Transmitting or otherwise communicating the offer or acceptance between a buyer and retailer
  • Owning or operating the infrastructure, electronic or physical, or technology that brings buyers and retailers together
  • Providing a virtual currency that buyers are allowed or required to use to purchase products from the retailer
  • Software development or research and development activities related to any of the activities described herein, if such activities are directly related to a physical or electronic marketplace operated by the person or an affiliated person

2. Engages in any of the following activities with respect to the retailer’s products:

  • Payment processing services
  • Fulfillment, delivery or storage services
  • Listing products for sale
  • Setting prices
  • Branding sales as those of the marketplace facilitator
  • Order taking
  • Advertising or promotion
  • Providing customer service or accepting or assisting with returns or exchanges

Missouri Senate Bill 87 Enactment 

The Missouri Legislature passed Senate Bill 87 on July 11, 2019, which modifies parts of Missouri’s sales tax code. These changes went into effect on August 28, 2019.

Significant Sales Tax Changes

RSMo Section 144.190 has been modified regarding refunds or erroneously paid taxes. The current statute allows a taxpayer to receive a refund for any tax, penalty or interest that has been paid more than once or has been erroneously or illegally collected or computed, provided a claim for refunds is filed within three years from the date of overpayment. Senate Bill 87 extends the statute of limitations from three years to 10 years. The bill didn’t change the statute of limitations for audits, i.e., remaining as three years.

RSMo §144.088 now requires any seller with receipts larger than $500,000 per year who provides a sales receipt or invoices to a purchaser to include the total rate of all sales tax imposed on the sale. This total rate must include and spell out all applicable state and local sales taxes.

IRC §163(j)  

Missouri Senate Bill 87 also contained a significant provision for income tax purposes. Due to Senate Bill 87, Missouri has now decoupled from Internal Revenue Code (IRC) §163(j) for all tax years beginning on or after January 1, 2018. IRC §163(j) imposes a limitation on the deductibility of interest expense for federal tax purposes. Interest expense paid or accrued in the current taxable year, but not allowed as a deduction for federal income tax purposes, will be subtracted from a taxpayer's federal adjusted gross income in computing Missouri adjusted gross income. Interest expense paid or accrued in a previous taxable year, but allowed as a deduction in the current taxable year for federal income tax purposes because it was carried forward, will be added to a taxpayer's federal adjusted gross income in calculating Missouri adjusted gross income. 

To learn more about how these changes may affect your business, reach out to your BKD trusted advisor or use the Contact Us form below.

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