The day before Kansas’ new sales tax policy for taxing remote sellers was set to go into effect (October 1), the State’s Attorney General issued an opinion declaring the policy to be invalid. According to Attorney General Opinion No. 2019- 8:
“Kansas has no legally adopted standard by which the Department of
Revenue may comply with the command of K.S.A. 79-3702(h)(1)(F) that the
statute be applied only to those retailers required “to collect and remit tax
under the provisions of the constitution and laws of the United States.” The
Department’s new policy interpreting the scope of K.S.A. 79-3702(h)(1)(F),
as described in Notice 19-04, is of no force or legal effect because it was
not lawfully adopted in compliance with Kansas law.”
It’s not so much that the Attorney General does not believe the State can require remote sellers to collect and remit tax on sales delivered to customers in Kansas pursuant to the Wayfair decision, it’s that the Department of Revenue lacks the legal authority to enforce this policy by issuing a Notice that was not adopted in compliance with Kansas law.
The Kansas Department of Revenue issued Notice 19-04, Sales Tax Requirements for Retailers Doing Business in Kansas on August 1, 2019. Unlike economic nexus thresholds adopted by every other state, Kansas’ does not include a small-seller exception or any sales or transaction thresholds. Therefore, all remote sellers with sales to customers in the State would be required to register and collect and remit Kansas sales and use tax on their sales. Kansas would be the first state in the nation to attempt to collect sales tax from all remote sellers, and their policy was considered prime for legal challenges by many tax experts.
Even though the State’s Attorney General has declared this policy to be invalid, it seems that the Department of Revenue plans to continue with its plans to enforce their policy starting October 1, 2019 as planned, until it is directed otherwise by state courts.
More information on this breaking news story can be found here.
Unfortunately, this leaves remote sellers in a precarious position if the Department of Revenue intends to enforce its policy. Do you register to collect sales and use tax in Kansas now or wait to see which party the State’s courts rule in favor of? Or do you wait to see if Kansas passes legislation or issues more formal guidance with a small-seller threshold like every other state has? These are tough choices, because, on one hand, you may over-collect a sales tax from your customers that was potentially unlawfully imposed, or on the other hand, you may be liable for sales tax that you didn’t collect on sales as of the Department’s effective date of October 1st.
We’ll keep you posted on what happens next in Kansas…