When online marketplace sellers must collect Arizona tax
- Oct 17, 2016 | Gail Cole
Online sales have made life a lot easier for many consumers. However, they have complicated sales tax compliance for many businesses. Many states are working to create new or expand existing online sales tax policies in order to capture more tax revenue from these sales, and the changing landscape further complicates compliance.
For example, the Arizona Department of Revenue recently issued a transaction privilege tax ruling that explains when out-of-state businesses have substantial nexus for transaction privilege tax (TPT) purposes. Yet another new TPT ruling clarifies when certain online sales — specifically sales by online marketplace sellers — are subject to tax.
Online marketplaces such as Amazon Marketplace enable small sellers to benefit from their association with a well-known brand. In addition, marketplace businesses typically provide a host of support services for their marketplace sellers: they fulfill orders, process payments, manage inventory, handle customer complaints, and more. This is often a beneficial relationship for both the seller and the marketplace, but it can create confusion with respect to sales tax.
The Arizona Department of Revenue (AZDOR) explains that in marketplace transactions, “it may be unclear who in fact the retailer is for tax purposes as a result of the online marketplace and third-party merchants operating in the same space.” The ruling therefore specifies “when and in what circumstances an online marketplace is the retailer for the purposes of the retail TPT on sales to Arizona customers.”
Is an online marketplace business with Arizona nexus for TPT purposes a “retailer” making “sales” on behalf of third-party merchants and therefore responsible for the retail TPT on sales to Arizona customers?
“A business that operates an online marketplace and makes online sales on behalf of third-party merchants … is a retailer conducting taxable sales. The gross receipts of that marketplace business derived from the sales of tangible personal property to Arizona purchasers are subject to retail TPT, provided that the business already has nexus for Arizona TPT purposes.”
The discussion of the ruling clarifies that “an online marketplace business with Arizona nexus that derives gross receipts from acting as agent of third-party merchants” is considered the retailer subject to the tax if it does the following for the third-party merchants:
- Provides a primary contact point for general customer service
- Processes payments and refunds on behalf of the merchant
- Markets the online marketplace under a single brand (each merchant is not listed on the marketplace)
- Has control over the fulfillment process
Additional details and numerous examples are provided in the ruling, TPR 16-3.
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