In a power move that will face legal challenges, Kansas Governor Laura Kelly had the state department of revenue issue a notice demanding any and all online sellers remit sales tax.
The notice says “any remote seller doing business with Kansas residents must register with the department and collect state and local sales taxes and forward the revenues to the state, starting Oct. 1.” It makes Kansas the owner of the most aggressive internet sales tax in the nation.
The Supreme Court’s decision in Wayfair vs. South Dakota outlined a series of requirements that the court felt made the law acceptable. These included a minimum sales or transaction threshold, specifically preventing states from going after small businesses and sellers that were doing very little business in a state. (Tax Foundation lays out the full “Wayfair Checklist” here).
Kansas has no such exemptions for small businesses, which should make Kelly’s new tax unconstitutional. The great irony is that Governor Kelly cites the court case in her notice.
Americans for Tax Reform has warned that states would start pushing the boundaries on the court’s decision, once the door was opened for state governments to reach across their borders and grab money from taxpayers who cannot vote for them. As ATR stated in its amicus brief to the court:
“if this Court overturns Quill, retailers with no presence in a taxing state will face complex and costly collection obligations, the threat of expensive and intrusive audits from thousands of taxing jurisdictions, and potential retroactive tax assessments,”
Incredibly, Kelly vetoed legislation this session that would have followed the guidance of the Wayfair decision, instead falling back on a previously passed bill that was not legal under the previous Quill v North Dakota decision.
The Governor was not happy that the bills passed by the Republican-controlled legislature significantly cut taxes to try and make up for the new burdens created by a new online sales tax.
The aggressive nature of the Kansas mandate sets the state up to lose businesses, revenue, and face potential lawsuits. Diane Yetter, founder of the Sales Tax Institute, said, “I think they’re insane. I just think Kansas is setting itself up for a lawsuit — and embarrassment, truthfully.”
In fact, a lawyer from the firm that represented Wayfair in the famous Supreme Court case believes the Kansas notice is legally on thin ice if does not include some type of sales threshold. A number of Kansas lawmakers, as well as the Kansas Chamber of Commerce have also commented that they were concerned about the notice. Legislators have said they will likely be taking up the issue again next session.
Under the Governor’s unilaterally-imposed notice, Kansas is hurting its business-friendly tax environment. The state is risking driving away out-of-state online retailers, and creating compliance nightmares for individuals who sell to a Kansas resident.
This is not what the Supreme Court promised in its Wayfair decision. This could be the first example of a state abusing its new taxing power, with many more to come.