Article written by:
Staff, State and Local Tax Services
While many of us are well aware of the changes brought about by the Supreme Court’s ruling in South Dakota v. Wayfair, another addition to the sales tax landscape that needs attention is Wayfair’s lesser-known sibling: Marketplace Facilitator.
Marketplace Facilitator laws have cropped up all over the country since the court’s landmark Wayfair ruling, and their effects are varied. From Maine to California at least 38 states as of 1/1/2020 have enacted some kind of statute or administrative guidance that affects both marketplace facilitators and anyone who sells through their platform.
The general consensus among the states is that marketplace facilitators are liable for tax on sales made through their platform, and so far every state has used the economic nexus threshold, established by their Wayfair laws, to determine when the facilitator must collect tax on behalf of the seller.
The facilitator must consider all the sales made through their platform along with their own sales. If that amount exceeds the threshold, then the marketplace facilitator is generally considered by the states to be liable for the collection and remittance of sales taxes.
As an example, if there were a company that sold $200,000 of its own product into a state with a $500,000 economic nexus threshold, they would not establish nexus and not be required to collect and remit tax. However, if that same company were a marketplace facilitator that sold $200,000 of its own product into that state, along with $300,000 in sales from third parties through its platform, then the facilitator has met the threshold and will generally be considered liable to collect and remit the tax of the sellers on its platform along with tax on its own products.
While the states that have enacted marketplace facilitator legislation are fairly consistent in their handling of facilitators, the same cannot be said of marketplace sellers.
The early adopters of marketplace facilitator laws generally claimed that facilitators were now responsible for tax on sales made through their platforms. As more states enacted legislation, there was a shift to more detailed guidance on how the sales through a facilitator are to be handled. The general consensus among the late adopters is that the states consider the marketplace facilitator to be the retailer and the marketplace seller “does not have the liabilities, obligations, and rights of a retailer” to quote Colorado, as an example.
The biggest impact this has on sellers is related to permitting requirements to be compliant with the new economic nexus statutes. If a marketplace seller doesn’t have the liabilities, obligations, or rights of a retailer, is that seller required to register for sales tax with the state in question once they exceed the economic nexus threshold? The short answer for most states is: no.
However, the practical answer is nuanced and depends on each taxpayer’s unique situation. While some states don’t want to see returns at all for sales made through marketplace facilitators, others require those gross receipts be reported, but then deducted. Still others require marketplace sellers to register, but not file returns at all. One outlier is Hawaii where marketplace sellers are deemed to be selling to the marketplace facilitator at wholesale who is then selling to the consumer at retail, and since Hawaii has an excise tax on wholesale transactions this allows the state to “double-dip” on taxes for any given transaction.
If this all sounds complicated, that’s because it is. States have been throwing curveballs on interstate sales since before the United States was formed, and no one should expect that to change anytime soon.
Some additional considerations include:
- Review of all current sales channels and applicability of marketplace facilitator laws;
- Continually reassess economic nexus positions taken after Wayfair; and
- Review of current ERP system capabilities in the face of an expanding nexus footprint.
GBQ State and Local Tax professionals are ready to assist taxpayers in understanding how marketplace facilitator legislation effects their compliance processes. Contact your tax advisor today to learn more.