Sales in the District of Columbia by Remote Sellers to be subject to Sales Tax

Author: Ronald E. Lyons Date: 07/27/2011

Categories: Corporate and Business Law, Tax Services

A new law was enacted in the District of Columbia at the end of June that will require non-exempt remote vendors to collect and remit to the District sales tax on sales made via the internet to buyers located in the District. The new law, approved on June 29, 2011, will become effective after a 30-day congressional review. Remote non-exempt vendors will be required to register with the District.

Before the District can require collection, however, it must pass local laws establishing:

  • a registry, with privacy and confidentiality controls so that it cannot be used for any purpose other than the administration of remote sales taxes, where each remote vendor will register;
  • appropriate protections for consumer privacy;
  • a means for a remote-vendor to determine the current District sales and use tax rate and taxability;
  • a formula and procedure that permits a remote-vendor or a third-party service provider hired by the remote-vendor to deduct reasonable compensation for expenses incurred in the administration, collection, and remittance of remote sales taxes;
  • the date that the collection of remote sales taxes will commence;
  • a small-vendor exemption, including a process for an exempted vendor to apply for a certificate of exemption;
  • the products and types of products that shall be exempt from the remote sales taxes;
  • rules (1) for accounting for bad debts and rounding, (2) that address refunds and credits for remote sales taxes relating to customer returns, restocking fees, discounts and coupons, (3) for allocating shipping and handling and discounts that apply to multiple items, (4) regarding notice and procedural requirements for registry enrollment by remote-vendors, and (5) that the Mayor determines are necessary or appropriate to further the purposes of the collection responsibilities and enforcement laws; and
  • a plan to substantially reduce the administrative burdens associated with sales and use taxes, including remote sales taxes.

For purposes of the Act, “exempt vendors” include a remote vendor that has a specified level of cumulative gross receipts from internet sales to buyers in the District that exempts it from the requirement to collect remote sales tax. A “remote vendor” is a seller, regardless of whether or not it has a physical presence or other limited nexus with the District, selling property or services via the internet to a buyer in the District. Many other States are looking at enacting similar legislation in order to raise additional tax revenues so it is important to review the local laws of all jurisdictions in which such sales are made.