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. Collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level. A proposed federal law, discussed below, would affect all state Internet sales tax laws so be sure to check for updates in this area.
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 a1992 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 having:
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. The one notable exception relates to affiliate nexus.
For basic guidance on how physical presence is defined 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, is available 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, 233-page PDF file.)
Affiliate Nexus in Oklahoma
While the physical-presence rule may seem clear, the Supreme Court in Quill discusses not only physical presence, but also several types of potential nexus (connection) between a business and a state. Affiliate nexus refers to a situation where an out-of-state vendor or retailer, such as an Internet seller, has a contractual relationship with an entity—often technically known as an affiliate—to have that entity provide certain services in the state where purchasers are located. The term can also apply to subsidiaries of the out-of-state vendor, and to in-state retailers who operate under the same name and sell essentially the same products as the vendor. The relevant services frequently include assisting the vendor sell, store, install, or service products that the vendor sells to purchasers in the state.
Under many states’ laws—including Oklahoma’s—affiliate nexus creates a legal obligation for the vendor to collect and pay sales tax. Oklahoma’s version of affiliate nexus applies when there is a contract with an affiliate “to provide and perform installation or maintenance services for the retailer's purchasers within this state.” Check O.S. Title 68, Section 1401(9) for more details.
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 shoes costing less than $100. For additional information, check the sales tax holiday section of the OTC’s FAQ page, 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.
At the federal level, Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act 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.
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 theOklahoma 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.
Last updated: April 13, 2016