Sales Tax Nexus in Washington State: What it Means for Your Business

Nexus rules determine where you must collect and remit sales tax. Often, nexus is obvious—for example, if you run a brick-and-mortar store, you have nexus in the state where you’re located. In other cases, with remote sellers and online retailers, nexus can be a bit trickier to determine, and it’s often based on the volume or value of sales to a particular state. 

If you operate a business in Washington state, you have nexus, and if you sell taxable goods or services, you must collect sales tax from your customers and remit it to the state. You may also have to deal with WA sales tax if you operate in a different state but send goods to Washington residents. Keep reading for more details or contact us at Seattle Legal Services PLLC.

What is Sales Tax Nexus?

Sales tax nexus defines the relationship between a business and a state. If you have sales tax nexus, you are required to collect and remit sales tax to the state and file the associated returns. If you do not have sales tax nexus, you do not need to collect or remit sales tax, even if you are dealing with a customer from the state.

Washington State has two types of sales tax nexus:

• Physical nexus refers to a physical presence in the state and includes the following:
  • Employees working in Washington State.
  • Real or tangible personal property in the state, including rented or leased personal property.
  • Storing goods or inventory in Washington, including inventory held by a marketplace facilitator or third-party representative.
  • Soliciting sales in Washington through employees or representatives.
  • Providing sales in the state.
  • Delivering goods into the state by other means than mail or common carrier-for example, using your company’s own vehicles for delivery.
  • Having an exhibit or trade show in the state.

• Economic nexus refers to a significant economic nexus with the state and applies when your business meets any of the following criteria:
  • Physical nexus in the state
  • More than $100,000 in sales to Washington.
  • Organized or commercially domiciled in Washington.

If you have economic nexus, you must register to collect sales tax, and then, you must file and pay based on the state’s rules.

Who Needs to Collect Sales Taxes?

The following businesses must collect sales tax in Washington:

• Businesses physically based in Washington that sell taxable tangible property.
• Remote businesses such as websites or marketplace facilitators that meet the economic nexus test described above.
• Businesses that sell taxable services in Washington State including construction services, cleaning and repair, landscaping and landscape maintenance, retail recreation services such as fishing charters or service charges on pro sporting tickets, personal services including training, tattooing, and tanning, and a variety of miscellaneous services ranging from vehicle towing to alarm monitoring. 

Food, prescription drugs, newspapers, and a few other types of select sales are exempt from sales tax in this state. If you’re not sure whether or not you need to register for a sales tax account, consult with a tax professional who can help you understand Washington State’s tax rules.

What Happens if You Don’t Collect Sales Tax?

If you fail to collect sales tax, you may be personally liable for the tax plus interest and penalties. 

Personal liability

For example, say that you sell taxable goods worth $120,000 to residents of Washington State from your website based in another state. These sales put you over the economic nexus threshold for the year, and based on the state’s 6.5% sales tax rate, you should have collected $7,800 in sales tax—the number may be even higher depending on additional county or city sales tax in your customers’ areas.

Even though you did not collect the sales tax, the Washington DOR may come after you and hold you personally liable for this amount plus interest and penalties.

Late filing penalties

The DOR’s penalties for filing returns late are steep. The late filing penalty is 9% of the tax liability, and it increases to 19% when you’re a month late and 29% when you’re more than two months late. For example, if you owe $10,000, the late penalty can get up to $2900.

Interest also accrues on late payments starting on the due date and running until you pay the bill. The rate varies. As of 2024, the rate was 6%, but it increases to 7% in 2025.

Penalties for underpayments and not registering

If you do not file a return or register for a sales tax account, you can face even more penalties. The DOR assesses a penalty of 5% for substantially underpaid tax and a 5% penalty for not registering. In total, that increases the possible penalty to 39% of the unreported tax, and interest applies to both the unpaid tax and the penalties.

The state offers a Voluntary Disclosure Program that allows you to avoid certain penalties if you come forward voluntarily before the DOR contacts you.

How to Register and Stay Compliant

To register for a WA sales tax account, you must first get a business license–this rule applies to everyone with sales tax nexus, regardless of whether or not they have a physical presence in the state. If applicable, note that you are a remote seller on the application. Once you register, create an online account with the Department of Revenue. You will file your sales tax returns through the online account. 

Alternatively, remote sellers and marketplace facilitators can register through the Streamlined Sales Tax Registration System. The SSTRS includes Washington and many other participating states.

Businesses with a physical presence in the state are not legally allowed to sell taxable goods or services until they set up their sales tax accounts. Remote sellers are required to set up a sales tax account once they reach the threshold, and after that, they must collect and remit sales tax for the rest of the year and the following year. 

For example, say that your website sells to customers in Washington, and in June 2024, you reach $100,000 in sales (including items exempt from sales tax) to customers in Washington. You must register your sales tax account and start collecting sales tax from WA-based customers during the month that starts at least 30 days after the sale that pushed you over the threshold. 

If you went over the threshold in mid-June, you need to start collecting sales tax from WA customers in August 2024 and then regardless of the volume of your sales, you must continue collecting and remitting sales tax through 2025.

To stay compliant, be sure that you calculate the sales tax rate correctly. Brick-and-mortar stores generally use the sales tax rate in their locality, while remote sellers use the sales tax rate at the delivery destination. Consider using software that will accurately calculate the sales tax rate and help you prepare the numbers for your sales tax returns and consult with a tax attorney as necessary.

Navigating Remote and Marketplace Seller Rules

As explained above, remote sellers must collect and remit sales tax if they are over the threshold of $100,000 in sales to customers in Washington or if they are organized or commercially domiciled in the state. The rules are slightly different for marketplace facilitators. 

A marketplace facility is a company that contracts with a seller to facilitate the sale of their items and handles the transaction between the seller and the buyer. For example, Amazon and Etsy are considered to be marketplace facilitators. Facilitators often offer payment processing, fulfillment and/or storage services, listing products for sale, setting prices, taking orders, providing customer service, or helping with returns or exchanges in order to facilitate the sales. 

Note that travel agents and websites that allow customers to purchase lodging in hotels or other facilities (not including homes, apartments, cabins, or other residential dwellings) for less than 30 days are not considered to be marketplace facilitators.

Facilitators must register for sales tax in Washington State if they meet any of the following criteria:

• Have a physical nexus in the state.
• Have marketplace sellers with a physical presence in the state.
• Are organized and commercially domiciled in Washington.
• Have more than $100,000 in gross receipts to the state.

Facilitators must also send their sellers info about their gross sales made in the state during the previous month by the 15th of the following month. If you are a remote seller and a marketplace facilitator has collected and remitted sales tax on your behalf, you should note that amount in the deduction list when filing your sales tax return.

Voluntary Disclosure Agreement (VDA) for Nexus Compliance

Washington’s Voluntary Disclosure Program may be able to help you minimize penalties and avoid other consequences if you have not been collecting or paying sales tax. To qualify, you must come forward before the state contacts you, and you must not be registered to collect sales tax. You can apply online through the DOR’s website, but you should talk with a tax attorney before starting this process. 

If you qualify, the state will give you a limited look-back period of four years, and the state may waive the 39% penalty. In other words, you will only need to pay sales tax on the last four years of sales or the number of years you had sales in the state if fewer than four.

You will face an unlimited look-back period if you have been collecting WA sales tax but not remitting it to the state. In these situations, the DOR will require you to report sales for every period in which you collected sales tax, and then, the DOR will assess a 29% late payment but waive the additional 5% penalty for significant understatement as well as the 5% penalty for not registering.

Once you complete the Voluntary Disclosure process, the DOR will send you a notice of your tax liability with instructions on how to pay. If you do not pay the liability by the deadline, you may face additional penalties and interest.

If the DOR realizes that you have not been filing sales tax returns and you do not take advantage of the VDP, you will face a sales tax assessment plus penalties of up to 39% of the tax and interest. The DOR may recommend tax evasion charges if they believe that you didn’t file or pay in a willful attempt to evade taxes. 

Get Help With Sales Tax Problems Today

Are you worried about uncollected sales tax or late sales tax returns? Not sure if you have nexus or not? Considering the Voluntary Disclosure Program? Facing a sales tax audit? Regardless of the sales tax problems you are facing, we can help. 

At Seattle Legal Services, PLLC, we have extensive experience helping businesses based in Washington as well as remote sellers and marketplace facilitators navigate the state’s sales tax rules and requirements. To learn more and get guidance now, contact us today.