United States: Recent Nexus Developments: Washington Enacts Legislation Imposing Sales Tax Obligations On "Marketplace Facilitators," And Ohio Enacts "Cookie Nexus" Law

At a Glance...

Washington Governor Jay Inslee signed EHB 2163 July 7, imposing sales and use tax obligations on "remote sellers," "referrers," and "marketplace facilitators" beginning January 1, 2018. Businesses subject to the new law may elect to either collect sales or use tax on taxable retail sales, or comply with notice and reporting requirements, similar to the reporting regime that went into effect in Colorado July 1. The bill contains a multi-layered penalty regime. In Ohio, Governor John Kasich signed into law H.B. 49, the state's biennial budget bill, which includes a provision imposing sales and use tax collection requirements on certain Internet sellers based on "cookie nexus."

Washington Marketplace Legislation

The State of Washington has enacted sweeping economic nexus legislation that requires almost any online retailer making sales to Washington customers to either (1) collect sales tax on its Washington sales; or (2) comply with reporting and notice requirements for its sales to Washington customers. The legislation creates a web of economic nexus rules that apply to both remote sellers and "marketplace facilitators," through which sellers' products are sold to Washington customers. 

The notice and reporting requirements for vendors and marketplace facilitators should be of particular concern to businesses making mail-order and online sales to Washington customers. Significantly, businesses that meet the statute's very low economic nexus thresholds, but that choose not to collect tax on their sales to Washington customers, will be required to comply with the notice and reporting requirements, which carry substantial penalties for non-compliance.

Marketplace Provisions. The new statute creates a new class of companies subject to tax collection or reporting requirements—"marketplace facilitators." A marketplace facilitator is defined as anyone that contracts with a seller to facilitate sale of the seller's products through a marketplace operated by the marketplace facilitator, if certain other requirements are met.1  Under the new law, a marketplace facilitator will be on the hook for collecting sales tax on all Washington sales made through its marketplace if it is either physically present in Washington, or makes $10,000 in gross receipts from sales to customers in Washington (whether through its sales or others' sales using the marketplace) in the current or preceding calendar year.2 If the marketplace facilitator does not collect and remit sales tax on its sales to Washington customers, it is required to comply with the notice and reporting requirements.

In addition to imposing an economic nexus standard for marketplace facilitators, the Washington law goes even farther by asserting that a vendor has economic nexus if it sells goods through a marketplace facilitator that has economic nexus—even if the vendor would not otherwise be required to collect sales tax on its sales to Washington customers. The law imputes the nexus of the marketplace facilitator to each marketplace seller by treating the marketplace facilitator as an agent of each marketplace seller.3

Economic Nexus for Remote Sellers. In addition to the marketplace nexus provisions, the Washington law imposes economic nexus for remote sellers with gross receipts of at least $10,000 from sales to Washington customers. A remote seller is any seller,4 other than a marketplace facilitator, who does not have a physical presence in Washington, but makes retail sales to consumers purchasing property sourced to Washington.5 Remote sellers with nexus would be required to either collect and remit retail sales or use tax on taxable sales to Washington customers, or comply with the notice and reporting requirements.6

Notice and Reporting Requirements. The new law gives vendors and marketplace facilitators the option of following notice and reporting requirements on sales to Washington customers—similar to those implemented in Colorado and upheld in Direct Marketing Association v. Brohl—in lieu of collecting sales or use tax. The penalties for non-compliance with these notice and reporting requirements are significant. For example, a remote seller or marketplace facilitator subject to, and failing to comply with, the requirements, that has gross receipts sourced to Washington of $300,000 or greater in a given year may be subject to penalties of: (1) $20,000, for failing to provide the required notice to consumers at the time of a sale; (2) $100,000 plus $20,000 for every $50,000 in gross receipts in excess of $300,000, for failing to send annual reports to consumers; and (3) the greater of $20,000, or $25 per consumer, for failing to provide the annual report to the Department of Revenue.7

Washington's law directly contravenes Quill v. North Dakota8 by providing that a remote seller or marketplace facilitator has nexus with Washington solely as a result of making sales sourced to the state. Physical presence is not the determinative factor to ascertain whether nexus exists under the law. Washington joins Minnesota as the only states seeking to impose sales tax obligations on marketplace facilitators. Remote sellers or trade associations will likely challenge the new Washington law in court. As the pending lawsuit challenging South Dakota's law attempting to overturn Quill demonstrates, remote sellers are ready and willing to challenge unconstitutional efforts by the states to impose sales tax obligations on non-physically- present sellers. 

Ohio "Cookie Nexus"

On June 30, Ohio Governor Kasich signed into law Ohio's budget bill, H.B. 49, which includes a provision requiring that Internet sellers with more than $500,000 of annual Ohio gross receipts must collect sales tax from Ohio customers. The requirement is triggered if a seller's website installs cookies on a user's computer, or if the seller employs a system of servers in Ohio. Specifically, the bill provides that substantial nexus with the state is presumed to exist when a seller "uses in-state software to sell or lease taxable tangible personal property or services to consumers," or "provides or enters into an agreement with another person to provide a content distribution network in this state to accelerate or enhance the delivery of the seller's web site to consumers."9 The bill includes the following definitions:

"In-state software" means computer software, as that term is defined in section 5739.01 of the Revised Code, that is stored on property in this state or is distributed within this state for the purpose of facilitating a seller's sales.

"Content delivery network" means a system of distributed servers that deliver web sites and other web content to a user based on the geographic location of the user, the origin of the web site or web content, and a content delivery server.10

Unlike Washington's statute, Ohio's new law is arguably not a direct challenge to Quill, because the use of cookies or in-state servers may satisfy Quill's physical presence requirement. In that sense, the bill mirrors one of the arguments that the Department of Taxation recently made to support the Commercial Activity Tax's bright-line nexus standard in Crutchfield Corp. v. Testa.11 In Crutchfield, the Department argued that the use of cookies helped the taxpayer to "grow and maintain its Ohio market," and thus was sufficient to create nexus. Ultimately, the Ohio Supreme Court held that Ohio's bright-line nexus standard for Commercial Activity Tax purposes ($500,000 of Ohio receipts) was sufficient to create substantial nexus, and did not address the effect of the use of cookies.(See Reed Smith's prior coverage.)


1. EEHB 2163 § 204(3).

2. EHB 2163 § 202(1)(a)(i), (2)(b).

3. EHB 2163 § 203(1)(a).

4. A seller has the same meaning as provided in RCWA § 82.08.010 (generally, every person making sales at retail to a buyer, purchaser, or consumer), and includes marketplace facilitators, whether making sales on their own right or on behalf of marketplace sellers, and referrers. EHB 2163 § 204(12).

5. EHB 2163 § 204(7), (10).

6. EHB 2163 § 202(1)(a)(i), (2)(a).

7. EHB 2163 §§ 206(1)(a), (2)(a), (3).

8. 504 U.S. 298 (1992).

9. H.B. 49 § 5741.01(I)(2)(h) and (i).

10. H.B. 49 § 5741.01(I)(6)(d) and (e).

11. Slip Opinion No. 2016-Ohio-7760.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions