Marketplace facilitators to collect Indiana sales tax on behalf of sellers
Like a growing number of states, Indiana will soon require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers.
Effective July 1, 2019, a marketplace facilitator that has nexus with Indiana is considered the retail merchant responsible for collecting and remitting tax on sales made through an electronic or physical marketplace if it does any of the following on behalf of a seller:
- Collects the sales or purchase price of the seller’s products
- Provides access to payment processing services, either directly or indirectly
- Charges, collects, or otherwise receives fees or other consideration for transactions made through an electronic marketplace
The marketplace must collect and remit the tax even if the individual seller doesn’t itself have an obligation to collect Indiana sales tax.
Nexus in Indiana
Like other retailers, a marketplace facilitator has nexus and an obligation to collect Indiana sales and use tax if it has a physical presence in the state.
An out-of-state marketplace facilitator with no physical presence in Indiana has economic nexus and an obligation to collect and remit sales tax if, in the current or previous calendar year, it has more than $100,000 in gross revenue from sales of tangible personal property, electronically transferred products, or services delivered in Indiana, or at least 200 separate transactions of the same in Indiana.
Individual sellers that have nexus with Indiana must register with the Indiana Department of Revenue and collect and remit Indiana sales tax on sales made through other channels (e.g., their own ecommerce store). As with marketplace facilitators, nexus for individual sellers is established by having a physical presence in the state, or by meeting one or both economic nexus thresholds: more than $100,000 in sales or at least 200 separate transactions.
For marketplace sellers, sales made through a non-collecting marketplace should be included in the threshold; sales made through a collecting marketplace should not be included in the threshold.
The new law (HEA 1001) specifies that “a person is a retail merchant making a retail transaction when the person rents or furnishes rooms, lodgings, or other accommodations, such as booths, display spaces, banquet facilities, and cubicles or spaces used for adult relaxation, massage, modeling, dancing, or other entertainment to another person,” provided that:
- The space is rented or furnished for less than 30 days, and
- The rooms, lodgings, and accommodations are located in an apartment, condominium, gymnasium, hotel, house, inn, tourist camp, or other place furnished for consideration or transient residential housing.
A marketplace that facilitates lodgings or other accommodations must collect and remit applicable innkeeper’s taxes in addition to applicable sales/use taxes.
For calendar years 2019 through 2021, partial relief from liability for failure to collect and remit the applicable tax is available to a marketplace facilitator that isn’t affiliated with the seller, provided:
- The taxable retail transaction was made through the marketplace
- The failure to collect gross retail or use tax was not caused by a sourcing error; and
- The transaction occurred before January 1, 2022
For calendar years beginning after December 31, 2021, a marketplace is not liable for failing to collect and remit the appropriate tax owed on sales made through the marketplace if it’s not affiliated with the seller and it can demonstrate that:
- The facilitator has a system in place to require the seller to provide accurate information, and has made a reasonable effort to obtain accurate information from the seller;
- The failure to collect and remit the correct tax was due to incorrect or insufficient information provided by the seller; and
- The facilitator can identify the purchaser in each untaxed (or improperly taxed) transaction
In the event the facilitator isn’t liable, the purchaser is liable for the tax owed.
While customers can seek a refund of sales tax from a marketplace facilitator, they can’t sue a marketplace facilitator to recover overpaid sales tax or bring a class action suit against a marketplace facilitator in any way related to an overpayment of sales or sue tax collected by the facilitator.
Check out Avalara’s state-by-state guide to marketplace facilitator laws to learn more.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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