Kansas imposes toughest online tax collections in the US: How do other states compare?
Kansas plans to impose what some tax experts said Wednesday would be the nation's most aggressive policy for collecting state and local taxes on online sales, possibly inviting a legal battle.
The state Department of Revenue issued a notice last week saying any "remote seller" doing business with Kansas residents must register with the department, collect state and local sales taxes and forward the revenues to the state, starting Oct. 1. It cites a U.S. Supreme Court decision last year allowing states to collect sales taxes on Internet sales.
Most states now have policies to collect such taxes, but almost all set minimum annual sales or transaction thresholds to exempt small businesses, according to groups tracking tax laws. Kansas is the first to attempt to collect the taxes without exempting any businesses, they said.
The Republican-controlled Legislature included provisions on taxing Internet sales in two tax-cutting bills this year, but Democratic Gov. Laura Kelly vetoed both measures, saying they would destabilize the state's finances. The Department of Revenue is imposing its new policy under an existing tax law that applied to out-of-state businesses but wasn't being enforced because past court decisions prevented it.
"I think they're insane," said Diane Yetter, founder of the Sales Tax Institute in Chicago. Later, she added, "I just think Kansas is setting itself up for a lawsuit — and embarrassment, truthfully."
Here's a look at how other states stack up to Kansas's new policy:
New York: The Empire State has more complex rules surrounding collecting taxes from online retailers; the state has sought to increase sales tax collection by using broader definitions of what it means to do business in their borders. They also require retailers to collect a tax if they have digital ties to the state, according to a Bloomberg report. The minimum sales threshold is $300,000 and 100 transactions.
South Dakota: On the other hand, South Dakota has a pretty simple tax policy: It taxes most products at a single rate, exempts small sellers and doesn't allow retroactive collection. The minimum qualification is $100,000 (like the majority of states) or 200 transactions.
Alabama: The state passed the "Simplified Seller Use Tax Remittance Act" in 2017, allowing eligible remote sellers to collect and remit a flat, eight percent sales tax rate. To be taxed, stores must exceed $250,000 in sales.
Idaho, Oklahoma: In both states, the minimum sales threshold in order to pay an online sales tax is only $10,000.
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The Associated Press contributed to this report.