Marketplace facilitators face new tax and reporting obligations in Oklahoma
Marketplace facilitators are currently required to collect and remit Oklahoma sales and use tax on retail sales of tangible personal property made through the platform for delivery into Oklahoma. Starting January 1, 2023, marketplace facilitators will be responsible for any tax levied by a local taxing jurisdiction on the retail sale of a product, provided the local tax is administered by the Oklahoma Tax Commission.
Additionally, marketplace facilitators will be required to screen high-volume sellers beginning January 1, 2023. To that end, they must obtain certain identifying information (e.g., a business tax identification number and working email address and phone number) from high-volume third-party sellers. They’ll also need to suspend sales activity for sellers that fail to provide such information. More details are available in the text of Senate Bill 418.
The various tax and reporting requirements imposed on marketplace facilitators and referrers in Oklahoma are already confusing. They’ll soon become even more burdensome due to the enactment of SB 418 and Senate Bill 1339.
- Expands the definition of “marketplace facilitator” from “a person that facilitates the sale at retail of tangible personal property” to “a person that facilitates the sale at retail of a marketplace seller’s product” — defined as “tangible personal property, services, or other transactions taxable under the Oklahoma Sales Tax Code (emphasis added)
- Makes marketplace facilitators responsible for collecting and remitting state-administered county lodging taxes as well as state-administered city and county sales and use taxes on taxable retail sales of tangible personal property, services, or other transactions into the state
SB 1339 will also affect Oklahoma’s non-collecting seller use tax notice and reporting requirement.
To understand what non-collecting seller use tax notice and reporting is — and why Oklahoma has such a requirement — you first need to understand the difference between sales tax and use tax as well as the significance of nexus and the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc.
What’s the difference between sales tax and use tax?
Sales tax is a transaction tax imposed on the transfer of a product or service from a seller to a consumer. In the U.S., 45 states have a sales tax, as do Puerto Rico and Washington, D.C. Thousands of local jurisdictions in 38 states levy a local sales tax, including Alaska, which has no statewide sales tax.
Use tax (aka, consumer use tax) complements sales tax. In most states, if the seller doesn’t collect sales tax on a taxable sale at checkout, the buyer owes the corresponding use tax. Consumer use tax is also due when consumers buy taxable goods outside of their home state, for use or storage in the state. For example, a South Dakota resident who purchases a rug in Istanbul and has it shipped home would owe South Dakota use tax on the value of the rug. Read about the difference between sales tax and use tax for more details.
Despite efforts by state tax authorities to increase awareness of consumer use tax, many consumers either don’t know about it or don’t realize they could have consumer use tax obligations. This is one reason states wanted the right to tax remote sales: It’s simpler and more cost-effective for them to hold businesses accountable for sales tax than individuals accountable for consumer use tax. But to tax remote sales, nexus laws needed to change.
Nexus and South Dakota v. Wayfair, Inc.
Nexus is a connection that allows a state or other taxing authority to tax a business, entity, or individual. For decades, sales tax nexus in all states was based almost entirely on physical presence: A state could require a business to register then collect and remit sales tax only if the business had a physical presence in the state, such as employees, inventory, or a brick-and-mortar store.
That changed after the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. (June 21, 2018), overturning the long-standing physical presence rule. Though physical presence still establishes nexus, the Wayfair decision granted states the authority to enact economic nexus laws that base a sales tax obligation on an out-of-state seller’s economic activity in the state.
Wayfair and economic nexus paved the way for marketplace facilitator laws, which shift the obligation to collect and remit sales tax from individual sellers to the online marketplaces they sell through.
Today, every state with a general sales tax has economic nexus and marketplace facilitator laws (click on the links for state-specific details). However, many states haven’t repealed laws that were developed prior to Wayfair to enhance remote sales or use tax collections — laws like Oklahoma’s non-collecting seller use tax notice and reporting requirements.
What is a non-collecting seller use tax notice and reporting requirement?
More than a dozen states developed non-collecting seller use tax reporting requirements in the years leading up to the Wayfair decision, when states were prohibited from taxing remote sales. Though exact requirements vary by state, non-collecting seller use tax notice and reporting laws generally require certain non-collecting remote sellers, marketplaces, or referrers to:
- Notify customers that the business doesn’t collect sales tax in the state
- Notify customers that customers are responsible for remitting and reporting use tax on taxable sales if the seller doesn’t collect sales tax at checkout
- Provide an annual purchase summary to customers to help them fulfill their use tax obligation
- Report customer information to the state tax authority
Failure to comply with a state’s non-collecting seller use tax notice and reporting requirement can lead to costly fees and penalties.
Georgia, Kentucky, and Washington repealed their non-collecting seller use tax notice and reporting requirements after enacting economic nexus and marketplace facilitator laws. Oklahoma did not. Instead, Oklahoma added a new collection requirement for remote sellers while maintaining the notice and reporting option for marketplace facilitators, and referrers. Its policies have evolved as follows.
From July 1, 2018, through October 31, 2019 (before economic nexus took effect):
A remote seller, marketplace facilitator, or referrer with aggregate sales of tangible personal property of $10,000 or more during the previous 12 months is required to register for sales tax or comply with non-collecting seller use tax notice and reporting requirements
As of November 1, 2019 (after economic nexus took effect):
- A remote seller with $100,000 or more in taxable retail sales of tangible personal property during the preceding 12 calendar months is required to register then collect and remit Oklahoma sales tax
- A marketplace facilitator or referrer with $10,000 or more in taxable retail sales of tangible personal property during the preceding 12 calendar months must register then collect and remit Oklahoma sales tax or comply with non-collecting seller use tax notice and reporting requirements
Beginning January 1, 2023:
- A remote seller with $100,000 or more in taxable retail sales of products during the preceding 12 calendar months is required to register then collect and remit Oklahoma sales tax
- A marketplace facilitator or referrer with $10,000 or more in taxable retail sales of products during the preceding 12 calendar months must register then collect and remit Oklahoma sales tax or comply with non-collecting seller use tax notice and reporting requirements
None of the small seller exceptions apply to businesses with a physical presence in Oklahoma. See the Oklahoma Tax Commission for more information.
Evolving sales tax laws complicate sales tax compliance
Changing thresholds, choices, and requirements make sales and use tax compliance difficult for remote sellers, marketplace facilitators, and referrers.
Every time any state amends its sales and use tax laws, businesses must reevaluate their obligations and adjust their compliance activities accordingly. Remote businesses selling into Oklahoma have to stay on their toes: What they did to be sales tax compliant in September 2018 may not suffice to keep them compliant when the law changes in 2023.
Automating sales tax calculation, collection, and remittance can help reduce compliance burdens. Learn more about sales tax automation.
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