Kansas is battling over whether they could enforce an existing law on nexus
It’s not so “home on the range” in Kansas these days with the Democrat governor, the Republican Attorney General, the head of the Department of Revenue and the Republican leaders in the Kansas’ legislature battling over whether Kansas could enforce an existing law on nexus, which imposes registration, collection and remittance obligations on remote sellers this year. In fact, beginning yesterday, October 1.
As I wrote in a blog in August following the release of Notice 19-04 by the Kansas DOR, under this existing law, there is no minimum thresholds explicitly stated. Kansas imposes its sales and use tax collection requirements to the fullest extent permitted by law. Specifically, K.S.A. 79-3702(h)(1)(F) provides that a retailer doing business in this state means:
(F) 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.
Kansas can, and does, require on-line and other remote sellers with no physical presence in Kansas to collect and remit the applicable sales or use tax on sales delivered into Kansas. Accordingly, a remote seller must register with Kansas and obtain a sales and/or use tax account number.
Remote sellers who are not already registered with the Kansas Department of Revenue must have registered and begun collecting and remitting Kansas sales and/or use tax by October 1, 2019.
Here’s where it gets especially interesting. It’s now October 2nd. On September 30th, Attorney General (AG) Derek Schmidt issued a legal opinion writing in part, “The Department (DOR) has chosen to draw a constitutional (and thus statutory) line that allows imposing the duty to collect and remit on all out-of-state retailers. That is the most extreme, and the least legally defensible, manner of proceeding.”
In a lengthy statement also issued on September 30th, Kansas Revenue Secretary Mark Burghart argued that the notice “does not reflect a change in policy, but only restates long-established statutory provisions regarding the duty to collect and remit Kansas tax.” He wrote that more than 3,200 remote sellers have registered with the state since SCOTUS’ decision in South Dakota v. Wayfair Inc. and that about 600 of those had registered since the notice was published August 1.
“The Department of Revenue cannot select which laws it enforces. Kansas statutes are presumed to be constitutional, and unless deemed otherwise by a court of competent jurisdiction, the Department is obligated to enforce the statutes enacted by the Legislature,” Burghart insisted.
It doesn’t end there. Also on September 30th, Republican legislative leaders asked the governor to rescind the notice after the AG’s nonbinding legal opinion that the DOR did not engage in a valid exercise of its authority. In response, on October 1, Governor Laura Kelly (D) dismissed the AG’s objections to the DOR’s post-Wayfair enforcement of remote seller collection obligations without the provision of safe harbors.
She said in part, “This is about protecting our friends and neighbors doing business on Main Street and throughout our local communities across Kansas. They are working hard, playing by the rules and deserve to be on a level playing field with out-of-state retailers. The Department of Revenue’s notice simply reaffirms this tax fairness.”
So, as we sit here today on October 2nd, the existing Kansas law and Notice 19-04 requirements are in effect. Kansas law requires on-line and other remote sellers with no physical presence in Kansas to collect and remit the applicable sales or use tax on sales delivered into Kansas. Accordingly, a remote seller must register with Kansas and obtain a sales and/or use tax account number. Keep in mind, this is effective October 1, 2019.
Obviously, we are not done yet. This battle will continue. What should online businesses who sell into Kansas do? Best practice suggests registering and complying as Kansas law requires. One commentator called the DOR’s actions “insane” and, even before the AG opinion was issued advised clients “not to register.” Obviously, I disagree. The business and financial risks of not registering and complying with the law can be devastating … especially to small and medium-sized businesses.