Seeking Safe Harbor In Kansas
Bear with me. My brain saw the word “Kansas” and automatically thought “Wizard of Oz”. There may be a yellow brick road leading small businesses to a safe harbor in Kansas after all!
After the U.S. Supreme Court issued its Wayfair decision, Kansas did not adopt the economic nexus for remote sellers. The state tried; however, the governor vetoed the legislation twice because it was tied to the reduction of tax on groceries. The governor said they needed to collect as much tax as they could and could not afford any tax cuts.
The Kansas Department of Revenue came behind the governor and said that even though they don’t have the ability to set a threshold, they know that physical presence is not required to collect sales tax from businesses so they went forward and enforced the economic nexus. Since they couldn’t implement thresholds, they expected businesses with even just one sale to register and collect tax. The mere threat of enforcement on companies with one sale seems to be an effective strategy. The Kansas Department of Revenue’s Secretary (DOR) Mark Burghart said that the department had collected about $5 million in sales and use taxes from businesses making sales revenue of less than $100,000 in annual sales into the state.
Staying with our Oz themes, the Wizard in the persona of Attorney General Derek Schmidt, informed the DOR that their failure to include safe harbor for small sellers is "inconsistent with Wayfair." This may be the beacon of hope for small businesses remote selling to customers in Kansas. It is kinda hard for the Kansas DOR to enforce, when the Kansas AG is telling them that their approach is invalid.
For those who have not registered, the Kansas Department of Revenue will be sending out letters to certain businesses to inform them of their state tax obligations. Many states send out initial letters reminding sellers of their requirements without threatening audit. We call these nice guy letters. Generally, after the nice guy letters, come the threatening letters (I am picturing them delivered by flying monkeys).
Several bills that would have created a $100,000 sales threshold for businesses were considered earlier this year. Due to the pandemic, legislative sessions were shortened and none of the bills received a floor vote. We’ll keep our fingers crossed for better news next session!
If your exposure is material, our advice is to follow the threshold of $100,000 or 200 transactions. If you’re under the threshold, we believe you should take the wizard’s comments to heart. And if the wicked state does not take the wizard’s comments seriously, click your heels 3 times and give us a call. We can assist you with any problems the state is causing or we can set up a sales tax permit in Kansas or any needed state.
By: Priya Sorathia
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.