Oklahoma Enacts Changes to Sales Tax Nexus Rules, Notification Requirements, Amnesty Rules, Etc.

The Governor signed legislation (HB 2359) becoming effective June 9, 2010 which made several changes to its sales tax laws regarding the presumption of nexus, notification requirements for retailers not required to collect sales tax, and provisions for a future amnesty program for internet retailers, retailers and consumers.

Nexus Changes - Substantial Ownership Interest

A retailer shall be deemed to be engaged in the business of selling tangible personal property for use in Oklahoma if:

  1. the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a retailer maintaining a place of business within this state, and
  2. the retailer sells the same or a substantially similar line of products as the related Oklahoma retailer and does so under the same or a substantially similar business name, or the Oklahoma facilities or Oklahoma employees of the related Oklahoma retailer are used to advertise, promote or facilitate sales by the retailer to consumers, or
  3. the retailer holds a substantial ownership interest in, or is owned in whole or in substantial part by, a business that maintains a distribution house, sales house, warehouse or similar place of business in Oklahoma that delivers property sold by the retailer to consumers.

"Substantial ownership interest” means an interest in an entity that is not less than the degree of ownership of equity interest in an entity that is specified by Section 78p of Title 15 of the United States Code, or any successor to that statute, with respect to a person other than a director or officer.

"Ownership” means and includes both direct ownership and indirect ownership through a parent, subsidiary or affiliate.

Nexus Changes - Component Member of Controlled Group

Any retailer that is part of a controlled group of corporations, and that controlled group of corporations has a component member that is a retailer engaged in business in this state shall be presumed to be a retailer engaged in business in this state. This presumption may be rebutted by evidence that during the calendar year at issue the component member that is a retailer engaged in business in this state did not engage in any of the activities described in this subparagraph on behalf of the retailer.

“Controlled group of corporations” means “controlled group of corporations” as defined in Section 1563(a) of the Internal Revenue Code, and “component member” means “component member” as defined in Section 1563(b) of the Internal Revenue Code.

Nexus Changes - Contractual Relationship with In-State Third-Party

Any retailer making sales of tangible personal property to purchasers in this state by mail, telephone, the Internet or other media which has a contractual relationship with an entity to provide and perform installation or maintenance services for the retailer’s purchasers within this state shall be included within the definition of “retailer.”

The phrase "maintaining a place of business within the state" includes any person having or maintaining in the state, directly or by subsidiary, an office, distribution house, sales house, warehouse, or other place of business. It also includes any person having agents operating in the state under authority of the retailer or subsidiary, whether the place of business or agent is within the state permanently or temporarily, or whether the person or subsidiary is authorized to do business within the state is immaterial.

Out of State Internet, Catalog and Mail Order Retailers Must Provide Notice
Retailers making sales of tangible personal property from a place of business outside Oklahoma for use in Oklahoma that are not required to collect use tax, must provide notice on their retail Internet Web site or retail catalog, and invoices provided to customers that use tax is imposed and must be paid by the purchaser (unless an exemption applies) on the storage, use, or other consumption of the property in Oklahoma.

The notice must be easily visible. In addition, retailers are prohibited from advertising on their retail Internet Web sites or in their retail catalogs that there is no tax due on purchases for use in Oklahoma.

These notice provisions do not take effect until a corresponding emergency or permanent administrative rule takes effect.

Retailer Compliance Initiative

For the purpose of encouraging the voluntary registration, collection, and remittance of use taxes, the Oklahoma Tax Commission is authorized and directed to establish a Retailer Compliance Initiative for out-of-state retailers.

The Tax Commission shall not seek payment of uncollected use taxes from an out-of-state retailer who registers to collect and remit applicable use taxes on sales made to purchasers in this state prior to registration under the Retailer Compliance Initiative, provided that the retailer was not registered in this state in the twelve-month period preceding the effective date of this section.

The provisions of this subsection will preclude assessment for uncollected use taxes together with penalty or interest for sales made during the period the retailer was not registered in this state, provided registration occurs prior to July 1, 2011.

The relief provided shall not be available to a retailer with respect to any matter or matters for which the retailer received notice of the commencement of an audit and which audit is not yet finally resolved including any related administrative and judicial processes.

Relief is also not available for use taxes already paid or remitted to the state or taxes collected, but not remitted, by the retailer.

The relief provided is fully effective, absent the retailer’s fraud or intentional misrepresentation of a material fact, as long as the retailer continues registration and continues collection and remittance of applicable use taxes for a period of at least thirty-six (36) months. The statute of limitations applicable to asserting a tax liability during this thirty-six-month period shall be tolled.

The relief provided is applicable only to use taxes due from a retailer in its capacity as a retailer and not to use taxes due from a retailer in its capacity as a buyer.

The registration by an out-of-state retailer for the collection of use taxes under the Retailer Compliance Initiative shall not be used as a factor in determining whether the retailer has nexus with this state for any other taxes, including income taxes, at any time.

The Tax Commission shall promulgate rules detailing the terms and other conditions of this program.

Internet Retailers Outreach Program

In an effort to improve compliance by Internet retailers for the collection of use tax on their sales to Oklahoma residents, the Oklahoma Tax Commission shall implement an outreach program to Internet retailers.

The program shall include contacting Internet retailers for a review of their business activities to determine if such activities may require the registration and collection of Oklahoma use taxes and the providing of information to the out-of-state retailers about the Retailer Compliance Initiative to encourage registration in this state.

Consumer Compliance Initiative

For the purpose of encouraging the voluntary disclosure and payment of use taxes owed to this state, the Oklahoma Tax Commission is authorized and directed to establish a Consumer Compliance Initiative for consumers liable for payment of use taxes.

A taxpayer shall be entitled to a waiver of penalty, interest and other collection fees due if the taxpayer voluntarily files delinquent tax returns and pays the taxes due during the initiative.

The Tax Commission shall promulgate rules detailing the terms and other conditions of this program.

Need Help?

Contact me at brian.strahle@bakertilly.com for assistance in applying these new rules to your business.

This blog

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

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Because state and local taxes are deceptively simple and endlessly complicated.

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