If you are selling goods or products online and some of your customers are located in Oklahoma, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Oklahoma. The new federal law scheduled to be voted on in May 2013 would affect all state Internet sales tax laws so be sure to check for updates in this area. (We will continue to keep you updated as well.)
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; the decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state.
For basic guidance on how physical presence is defined specifically under Oklahoma law, consult Section 1352(13) of Title 68 of the Oklahoma Statutes (O.S.), which defines the phrase “maintaining a place of business in this state.” (All of Title 68 of the Oklahoma Statutes, which covers revenue and taxation laws generally, is available for download as a single text document, nearly 550,000 words in length, from a link on an Oklahoma State Legislature webpage. Individual sections of Title 68 are not readily available online.) The definition includes maintaining a place of business directly or by a subsidiary. Also, additional guidance is available from Section 710:65-1-8 of the Oklahoma Administrative Code (OAC). (Title 65 of the OAC, which covers Oklahoma’s sales and use tax, is available for download from the Oklahoma Tax Commission (OTC) as a single, 238-page PDF file.)
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of a warehouse in Arlington, Virginia and make a sale to a customer in Enid, Oklahoma—a state where your business has no physical presence: You are not required to collect sales tax from the Enid customer.
Example 2: You are operating solely out of an office in Tulsa, Oklahoma and make a sale to a customer in Broken Arrow, Oklahoma: You are required to collect sales tax from the Broken Arrow customer.
Example 3: After several years of operating solely out of a warehouse in Arlington, Virginia, you open a one-room satellite office just outside of Oklahoma City, Oklahoma—a state where previously you had no physical presence. A day later, you make a sale to a customer in Norman, Oklahoma: You are required to collect sales tax from the Norman customer.
In limited cases, items sold via the Internet to Oklahoma customers may be exempt from sales tax under Oklahoma law. For example, certain computer equipment sold to purchasers primarily engaged in research and development or computer services and data processing is exempt from sales tax. For detailed, plain-English coverage of virtually all exemptions, consult OAC 710:65-13.
Oklahoma also has an annual sales tax holiday running from the first Friday in August through the following Sunday. The tax holiday covers clothing and footwear costing less than $100. For additional information, check the OTC’s sales tax holiday webpage (which includes links to FAQs), as well as OAC 710:65-13-511.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” Detailed information is available in OAC 710:65-21-1 through OAC 710:65-21-8. The law states that “In the event that [a] vendor is not ‘maintaining a place of business in this state’ and has not voluntarily agreed to collect the use tax, the Oklahoma purchaser must accrue, report, and remit the use tax.”
Oklahoma’s Modest “Amazon Law”
In 2010, the Oklahoma legislature enacted new laws intended to increase the amount of taxes collected on items purchased by Oklahoma residents from out-of-state Internet retailers. Similar, and generally stronger, laws have been at least considered, and sometimes enacted, in various states around the country; they are commonly known as “Amazon Laws.” As you might guess, the name refers to Amazon.com, which is a large, Internet-based retailer that does not have a physical presence in many states, and therefore, under the default sales tax rule, need not collect sales tax from customers in those states. As customers in those states often do not pay the corresponding use tax, Amazon’s sales, and those of other large online retailers, such as Overstock.com, are frequently understood to constitute significant lost tax revenue for those states.
Probably the most important part of the new Oklahoma laws for out-of-state Internet retailers is a requirement that these retailers provide “readily visible” “notification” on their websites that, where appropriate, use tax must be paid by the purchaser. The basic requirement is described in 68 O.S. 1406.1(A), but a much more detailed set of instructions on what Internet retailers need to do can be found in OAC 710:65-21-8.
For most small online businesses, it is the long-established “physical presence” rule that provides primary guidance on collecting tax on sales to customers in Oklahoma. However, the issue is contentious, as demonstrated by the use tax notification law enacted in Oklahoma in 2010. Therefore, you should consider checking in periodically with the Oklahoma Tax Commission to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.