California and Texas increase tax obligations for marketplace facilitators

But Illinois is forced to pause its tax collection expansion efforts.

This post was updated September 30, 2021.

Like most states with sales tax, California and Texas currently require marketplace facilitators to collect and remit sales tax on third-party sales and direct sales. Soon, marketplace facilitators in these two states will be responsible for other fees as well.

Expanding the tax collection obligations of remote sellers and marketplaces facilitators is a growing trend in the United States. However, Illinois was recently blocked from requiring marketplaces facilitators and remote retailers to collect additional taxes and fees. Read on for more details.

On and after July 1, 2022, a marketplace facilitator (called a “marketplace provider” in Texas) that processes sales of or payments for lead-acid batteries in Texas must collect the lead-acid battery fee ($2 or $3, depending on the capacity of the battery) for each nonexempt lead-acid battery sold through the marketplace.

Similarly, marketplace providers must collect and remit the prepaid wireless 911 emergency services fee (2% of the purchase price of the telecommunications service) on sales made through the marketplace, where applicable.

These changes are due to the enactment of House Bill 477, which also clarifies certain other collection and reporting requirements for marketplace sellers and providers.

Additional changes affecting marketplace sellers and facilitators in Texas

As of October 1, 2021, the state sales and use tax exemption for occasional sales no longer applies to any taxable item sold by a marketplace seller through a marketplace in Texas.

Effective October 1, a marketplace seller that sells a ticket or other admission document through a marketplace in Texas must certify to the marketplace provider that sales and use taxes on the original purchase of the ticket or admission document were paid. A marketplace provider that accepts such certification in good faith may take the deduction provided by Section 151.432 on behalf of the marketplace sellers. 

While marketplace facilitators in California currently collect and remit sales and use tax on behalf of third-party sellers, marketplace sellers remain liable for certain applicable fees. The authors of Assembly Bill 1402 believe making marketplace facilitators responsible for those fees would “reduce uncertainty and the administrative burden on marketplace sellers,” and make the administration of these fees easier for the California Department of Tax and Fee Administration (CDTFA).

Thus, AB 1402 requires marketplace facilitators to register for these state-level fees administered under the Fee Collection Procedures Law (FCPL) and imposed upon the retail sale of tangible personal property in California:

• California tire fee
• Covered electronic waste recycling fee
• Lead-acid battery fees
• Lumber products assessment

Under AB 1402, marketplace facilitators selling affected products are required to collect, remit, and report these fees on sales made through the marketplace. However, marketplace sellers will continue to be responsible for these fees for any direct sales they make (i.e., sales not made through a marketplace facilitator).

Governor Newsom signed AB 1402 into law on September 30, 2021.

Illinois is another state working to expand tax collection requirements for marketplace facilitators and other retailers. Earlier this year, it adopted an emergency regulation making certain marketplace facilitators, remote retailers, or marketplace sellers liable for the following:

• Chicago Home Rule Municipal Soft Drink Retailers’ Occupation Tax
• Illinois Telecommunications Access Corporation Assessment
• Metropolitan Pier and Exposition Authority Retailers’ Occupation Tax (MPEA)
• Prepaid Wireless E-911 Surcharge
• Tire User Fee

The emergency regulation was in effect from July 13, 2021, to August 18, 2021, when the Joint Committee on Administrative Rules voted to suspend it because “these changes are occurring in the middle of a tax year, do not specify whether the changes apply to the entire tax year or only prospectively, and did not permit affected entities adequate time to implement required changes to their tax systems” (Illinois Register Volume 45, Issue 36). As a result of this decision, the Department of Revenue may not enforce its emergency rule “for any reason.”

Learn more about state efforts to expand marketplace facilitator collection requirements beyond sales tax.