On December 31, 2018, District of Columbia Mayor Muriel Bowser signed B22-1070, the Internet Sales Tax Emergency Amendment Act of 2018 (Emergency Act). As of January 1, 2019, the District of Columbia now subjects digital goods to the 6% sales tax rate and imposes Wayfair-style economic nexus sales tax collection requirements. As of April 1, 2019, the District also will require marketplace facilitators to collect sales tax on behalf of their marketplace sellers.
Background
The DC Council passed the Internet Sales Tax Amendment Act of 2018 (Act) on December 4, 2018. However, because the Act could not take effect by the January 1, 2019, effective date of many of its provisions, the DC Council passed the identical Emergency Act on December 18, 2018. Mayor Bowser signed the Emergency Act on New Year’s Eve. The fiscal impact statement for the Act estimates that it will increase sales tax revenue by $96.9 million through 2022. The Act uses the gained revenue to reduce the commercial real property tax rate.
Eversheds Sutherland Observation: The District’s regular “permanent” legislation must be read multiple times, reviewed by a committee, passed by the DC Council, signed by the mayor, and survive a 30-day period of congressional review. Emergency legislation, however, does not need multiple readings, committee review, or congressional review, but it is effective for no longer than 90 days.1 Had the Emergency Act not been enacted, the Act’s provisions would not have taken effect until after the congressional review period (i.e., later than the January 1, 2019, effective date of the digital goods and economic nexus provisions).
District of Columbia Statutory Amendments
Beginning January 1, 2019, the District requires sellers without a physical presence in the District to collect and remit sales tax if they had in the previous calendar year, or will have in the current calendar year, more than $100,000 of gross receipts from retail sales delivered into the District or more than 200 separate retail sales delivered into the District. This approach follows that of South Dakota in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (U.S. 2018), along with many other states.
Following passage of the Emergency Act, the District imposes its 6% sales tax on a wide swath of “digital goods,” which includes “digital audio visual works,” “digital audio works,” “digital books,” “digital codes,” “digital applications and games,” and “any other otherwise taxable tangible personal property electronically or digitally delivered, streamed, or accessed and whether purchased singly, by subscription, or in any other manner.”2 Now, the District imposes sales tax on digital books, digital audio books, digital music downloads and streaming, digital video downloads, and streaming video services. The District already imposed sales tax on applications, software, digital news, and digital periodicals under separate imposition statutes.3 As noted by the Office of Tax and Revenue in Notice 2019-01, the Emergency Act does not change the District’s taxation of software.
Eversheds Sutherland Observation: Prior to January 1, 2019, the Office of Tax and Revenue imposed the 10% gross receipts tax on streaming video as the distribution of a video service.4 Because of this law change, streaming video is instead subject to the lesser 6% sales tax rate. To the extent a streaming video service provider had been remitting the gross receipts tax to the District, and not otherwise collecting and remitting sales or use tax, it must now obtain a sales tax registration number at https://mytax.dc.gov and close its gross receipts tax account if it no longer provides taxable utility services in the District.5
Finally, effective April 1, 2019, marketplace facilitators6 are retailers required to collect and remit sales tax on all sales to District customers that they make on their own behalf and that they facilitate on behalf of marketplace sellers. A marketplace facilitator is required to collect sales tax even if its marketplace seller would not have otherwise been required to do so.
Eversheds Sutherland Observation: The three-month difference in timing between the Wayfair nexus standard (January 1, 2019) and marketplace facilitator collection requirement (April 1, 2019) may cause some marketplace sellers to collect sales tax for January through March 2019 and transition to marketplace collection on April 1.
These statutory amendments are further explained by OTR Notice 2019-01, Taxation of Digital Goods in the District of Columbia, and OTR Notice 2019-02, South Dakota v. Wayfair, Inc., which were released on January 2, 2019.
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1See D.C. Code Ann. § 1-206.02(c).
2 The District defines these terms at new D.C. Code Ann. § 47-2001(d-1)(1) – (2).
3 OTR Notice 2017-06, Taxation of Digital Goods in the District of Columbia, Office of Tax & Revenue (Oct. 5, 2017) (superseded by OTR Notice 2019-01, Taxation of Digital Goods in the District of Columbia, Office of Tax & Revenue (Jan. 2, 2019)). The District taxed applications and software as data processing services. See D.C. Mun. Regs. tit. 9, § 474.4. The District taxed digital news and digital periodicals as “the furnishing of general or specialized news or current information” and as a “news clipping service” under D.C. Code Ann. § 47-2001(n)(1)(N)(ii). These items are still taxed in this manner, but applications are now taxable as digital goods.
4 D.C. Code Ann. § 47-2501.01; OTR Notice 2017-06.
5 To avoid the double taxation of sales of streaming video, the District amended D.C. Code Ann. § 47-2501.01(a) to exclude from the gross receipts tax base “sales of digital goods as defined in § 47-2001(d-1) and subject to tax pursuant to § 47-2001(n)(1)(C) or § 47-2201(a)(1)(R).”
6 “Marketplace facilitator” is defined as “a person that provides a marketplace that lists, advertises, stores, or processes orders for retail sales subject to tax under this chapter for sale by such marketplace sellers, and directly or indirectly collects payment from a purchaser and remits payment to a marketplace seller regardless of whether the marketplace facilitator receives compensation or other consideration in exchange for its services.” D.C. Code Ann. § 47-2001(g-5). See also D.C. Code Ann. § 47-2001(l)(4) – (5) (including “marketplace facilitator” and “marketplace seller” as a “retailer”).
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