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Wednesday, June 16, 2010

Oklahoma follows Colorado Approach to Increase Use Tax Compliance

On June 9, 2010, Oklahoma, following the lead of Colorado, enacted HB 2359 to require vendors that sell tangible personal property to Oklahomans and do not collect the Oklahoma sales tax to notify the customers that they may owe use tax. This new rule generally applies to vendors with total sales over a threshold amount to be set by the Oklahoma Tax Commission.


The Oklahoma Tax Commission is to create a Retailer Compliance Initiative to encourage non-present vendors to register to collect sales/use tax in Oklahoma.

The bill also provides: "D. When assisting taxpayers in preparing an individual income tax return, tax preparers shall advise their clients of their responsibility to remit use taxes through the use tax remittance line on the individual income tax return or by filing a consumer use tax return."

HB 2359 also creates an affiliate nexus provision.

California has a similar proposal - AB 2078. (Click here to search for this bill to obtain its status and analysis.)

Some question whether the Colorado requirement for non-present vendors to provide information to Colorado customers on invoices and to file an annual report with the customers and state are constitutional given that the vendors have no physical presence in Colorado. Physical presence is the nexus standard for sales tax per the 1992 US Supreme Court decision in Quill Corp. v. North Dakota, 504 U.S. 298. Is the standard less if there is no tax required to be collected? Under the Due Process clause, just making a market in Colorado may be enough for the state to be able to make a person subject to their laws. but, does the quantity of sales in the state matter? Perhaps. Here is language from Quill:

"here is no question that Quill has purposefully directed its activities at North Dakota residents, that the magnitude of those contacts are more than sufficient for due process purposes, and that the use tax is related to the benefits Quill receives from access to the State. We therefore agree with the North Dakota Supreme Court's conclusion that the Due Process Clause does not bar enforcement of that State's use tax against Quill."

How significant is "magnitude of those contacts?" What if a vendor with $100,000 or more of total sales, only has 3 out of 100 sales in Colorado and they are not large in dollar amount relative to other sales?

Perhaps in personam jurisdiction cases not involving tax issues are relevant. A 2008 9th Circuit case - Boschetto v. Hansing, found that a Californian who purchased a car on eBay from an individual in Wisconsin could not require the Wisconsin person to come to California for a lawsuit. The court did not find that a single transaction in the state does not mean that the defendant "purposefully availed themselves of the privilege of doing business in California."

Is that relevant to an information reporting requirement that invovles no tax and no travel (although it does potentially involve significant fines)? A court case on this would be helpful.

What about the US Commerce Clause? Will the Colorado requirement impede interstate commerce? There are significant penalties for failure to comply and there are costs to comply. Is it enough to reasonably lead some Internet vendors (including eBay sellers with $100,000 or more of annual sales) to say they will no longer sell to Colorado customers? Probably not, but I could be wrong.

Also, if copycat states enact the exact language of Colorado and work together to have the same reporting forms and due dates and perhaps even a third party vendor arrangement to assist sellers, the Commerce Clause issue seems to be diminished. But, I expect that someone will challenge the constitutionality of the provision - we'll see what happens and how many states follow the Colorado model, which should increase use tax compliance and certainly makes it easier for the state to know who has not complied with the obligation to self-report and pay use tax.

What do you think?


Radu Prisacaru – UK Internet Marketer & Web Developer said...

How long do you spend writing on your blog per month?

Professor Nellen said...

How long do I spend writing on my blog per month? That's a good question and one I might not want to answer to! I'm easily spending 7 - 10 hours monthly. That work though often ties to projects I might be working on for articles or class prep so that helps.

I enjoyed reading your website and blog.

Anonymous said...

Information in this post may not be accurate: AFAIK online sellers are required to disclose to the USERS that they have use tax due; however, they are NOT obligated to report to the Okla. tax commission as to the purchasers' names and total amounts. This is one of the biggest difference to Colorado's law.

Also see:

An expert’s take on Oklahoma’s new sales tax compliance law: notification:

Professor Nellen said...

Thanks for catching my mistake. I've fixed the post. Here is a link to the changed statute in Oklahoma -