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Kentucky Nexus for Online Retailers: Old Approach For New Times?

author photo of Jerry Donnini

The State and Local Tax (SALT) community has been overwhelmed for the past few years on how to get the online retailers to collect and remit state sales tax. Sitting in the states’ way of forcing worldwide collection of state and local taxes is Quill v. North Dakota. Quill prohibits a state from forcing a retailer to collect or pay its taxes unless a company has nexus – a connection with the state. While virtually every state has been pushing to get companies to collect the taxes, Kentucky took the opposite approach.

In October, 2013, a bulletin was released by Kentucky’s Department of Revenue. The notice reminded taxpayers that, effective July 1, 2013, Kentucky set forth certain requirements for online retailers selling into Kentucky. Specifically, KRS 139.450 requires that if an online retailer makes sales of over $100,000 into Kentucky during a calendar year, then the retailer must provide certain notices in their retail catalogs on their websites, invoices, and other similar documents of the customer’s tax obligations.

Specifically, the notice requires the following statement to be made by the retailer:

  1. The retailer is not required to and does not collect Kentucky sales or use tax;
  2. The purchase may be subject to Kentucky use tax unless the purchase is exempt from taxation in Kentucky;
  3. The purchase is not exempt merely because it is made over the internet, by catalog, or by other remote means; and
  4. The Commonwealth of Kentucky requires Kentucky purchasers to report all purchases of tangible personal property or digital property that are not taxed by the retailer and pay use tax on those purchases unless exempt under Kentucky law. The tax may be reported and paid on the Kentucky individual income tax return or by filing a consumer use tax return with the Kentucky Department of Revenue. These forms and corresponding instructions may be found on the Kentucky Department of Revenue’s Internet Web site

While many states are seeking for revenue generation and pushing the limits of nexus jurisprudence, Kentucky has taken the approach to put the burden of tax collection on the consumer. It is inarguable that this law does put some burden on the retailer, however, it is not as burdensome as forcing the online retailer to report in some 9,600 jurisdictions. Critics of the law will also point out that many consumers will not actually file and remit sales taxes. Regardless of the result of the law, it appears that a strong argument can be made that Kentucky is one of the only states respecting the Quill decision.

There are certainly a myriad of nexus mitigation tactics to combat the current state of aggression across the country. Each client we talk to gives rise to other planning techniques in the nexus battle. For example, what happens if a company was to just cease to exist and a new registered company, selling strikingly similar goods, was simultaneously created? Is there anything a state can do against the former company? What about personal liability of the officers of the first company? Whatever is decided, it should clearly be with the assistance of a state and local tax professional.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog . If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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Comments

5 Responses to Kentucky Nexus for Online Retailers: Old Approach For New Times?

  • Posted by Mila on November 19, 2013 4:15am:

    Jerry, what are the penalties if an online retailer does not post Kentucky notice on their website?

    • Posted by Author photo of Jerry DonniniJerry Donnini on November 19, 2013 12:54pm:

      Great question Mila. Some states like South Dakota and Vermont provide that there can be no civil or criminal penalties for a retailer’s failure to comply with the use tax notification provision, however, Kentucky has no such non-enforcement clause. It remains to be seen whether the Kentucky Department of Revenue will bring enforcement actions, but nothing in the new law appears to prevent it.

  • Posted by Could on November 6, 2013 7:55pm:

    [...] we recently read on SalesTaxSupport.com that Kentucky is taking a different approach to collecting tax revenue on the sale of consumer goods. Instead of threatening to enter into the boondoggle of asking out-of-state sellers to comply with [...]

  • Posted by Gregory on October 30, 2013 9:27am:

    There are two paths:
    First path insists Sales and Use Taxes are regressive. The first path is for the consumer investing on the lower levels of Maslow's Heirarchy.
    Second path is for business investments, and the allowences thereof by the taxing authorities...the second path is diversive.

    • Posted by Author photo of Jerry DonniniJerry Donnini on November 6, 2013 6:47am:

      Thanks for the comments as always, Greg.

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