eBay to collect sales tax in Oklahoma, Pennsylvania, and Washington in 2019
Online marketplace eBay has announced it will collect and remit sales and use tax on behalf of sellers in three states next year: Washington starting January 1, 2019, and Oklahoma and Pennsylvania as of July 1, 2019. That list is likely to grow as more states require marketplace facilitators to collect and remit tax on their third-party sales.
Marketplace sales in the United States generate billions in revenue: The top 42 American marketplaces, led by Amazon, eBay, and Walmart, had $473 billion in sales in 2017. Yet until recently, states were prevented from taxing many of those sales because they were made by remote sellers. U.S. Supreme Court precedent held that a state could not tax sales by a business unless it had a physical presence in the state.
The path to taxing remote sales was cleared by a recent ruling by the Supreme Court of the United States — South Dakota v. Wayfair, Inc. (June 21, 2018). In the Wayfair decision, the court found the physical presence rule to be “unsound and incorrect” and determined that a seller’s “economic and virtual contacts” with a state could be substantial enough to trigger a tax collection obligation. States are now free to tax sales by businesses with no physical presence in the state.
More than 25 states have adopted laws similar to the South Dakota law that triggered the Supreme Court case, which bases a tax collection duty solely on a remote seller’s economic activity in a state (economic nexus). Yet eBay isn’t responding to economic nexus laws in Oklahoma, Pennsylvania, and Washington. It’s going to collect and remit sales tax in those states because they have “extended the tax collection obligation to marketplaces.”
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Taxing marketplace facilitators
Marketplace sales tax laws were developed after Amazon started to collect and remit tax on its own sales in all sales tax states; it then came to light that the online behemoth wasn’t collecting or remitting tax on the bulk of its third-party sales (Amazon does offer tax calculation services for third-party sellers, for a fee, but sellers remain responsible for remitting the tax and filing returns).
Amazon argued that because it isn’t the seller for those transactions — it merely facilitates the sales — it shouldn’t be responsible for collecting and remitting the sales tax on marketplace sales. Other marketplace facilitators, including eBay, took a similar position.
It’s a compelling argument. But with marketplace sales comprising more than 50 percent of all Amazon sales, and a growing portion of all online sales, states are nonetheless eager to tax these transactions. Thus, the development of marketplace facilitator tax laws.
Before the Supreme Court issued the Wayfair ruling, a handful of states passed laws giving marketplace facilitators a choice: Collect and remit tax on behalf of your third-party sellers, or comply with use tax notice and reporting provisions (consumers owe use tax on taxable sales when sales tax wasn’t collected at checkout). Use tax reporting requirements for non-collecting sellers were designed to increase use tax compliance among consumers, facilitate consumer use tax enforcement by the state, and perhaps also encourage voluntary use tax collection among non-collecting sellers.
Some of the first of these marketplace facilitator laws to take effect were in Washington (January 1, 2018), Pennsylvania (March 1, 2018), and Oklahoma (July 1, 2018). Amazon and several other large marketplaces opted to collect and remit rather than comply with the use tax notice and reporting requirements.
Now that states have the right to tax sales by businesses with no physical presence in the state, eBay is preparing to collect and remit. It still maintains that the Wayfair ruling “is unfair to small businesses,” and says it will “continue to call for greater simplicity” in state sales tax laws. “In the meantime,” however, “we’re working to find the best way to support our sellers.” This means it will soon “calculate, collect, and remit sales tax for orders shipped to customers” in Oklahoma, Pennsylvania, and Washington.
Businesses that sell through these platforms must allow the marketplace to assume tax collection responsibilities, and there’s no charge for the service. According to eBay: “There are no opt-outs for selling items into [Oklahoma, Pennsylvania, or Washington], or out of eBay automatically collecting sales tax for items shipped to [those states].”
This is likely to facilitate compliance for eBay and anyone selling through that platform alone. However, it could cause headaches for sellers also using other platforms (including their own websites) that require them to register with the state and collect and remit tax.
Selling through multiple channels
Close to 10 states already or will soon require marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers. The Multistate Tax Commission (MTC) believes more states are likely to follow suit given the South Dakota v. Wayfair, Inc. decision. It’s currently gathering information and working to develop ways “to maximize compliance while minimizing the burden on marketplace facilitators and marketplace sellers.”
One issue under consideration is whether registration and return filing requirements for marketplace facilitators and sellers are “in conflict or duplicative.”
In feedback to the MTC, Scott Peterson, Vice President of U.S. Tax Policy and Government Relations at Avalara, points out that most marketplace sellers sell via multiple channels. He worries marketplace sales tax laws create “confusion and errors that eventually create work for the state.”
Craig Johnson, Executive Director of the Streamlined Sales Tax Governing Board (SST), also raises a flag over the challenges facing sellers that reach customers through both marketplaces and their own website. SST strives to simplify and modernize state tax laws to facilitate and reduce the costs of sales tax compliance, particularly for remote sellers.
Whatever the MTC eventually recommends, currently marketplace facilitators and sellers must comply with existing requirements in states that tax marketplace transactions.
Understanding the changing landscape of sales and use tax, eBay offers the following advice to sellers: “Regardless of where you’re physically located, if you sell to buyers in certain states, those states may require you to collect applicable taxes on your transactions.”
The company also recommends its marketplace sellers consult with a tax advisor for more information. It has also partnered with Avalara, which, eBay notes, “will have specific insights into the best course of action for you.” Learn more at avalara.com.
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