2 more states require marketplace facilitators to collect sales tax, January 2019
- Dec 28, 2018 | Gail Cole
Alabama and Iowa will soon join a growing list of states requiring marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. The new requirements in both states take effect January 1, 2019.
Marketplace facilitators are businesses that provide an infrastructure to facilitate retail sales, and collect and process payments, or receive compensation from retail sales.
According to the Alabama Department of Revenue, “marketplace facilitators with Alabama marketplace sales in excess of $250,000 [are required] to collect tax on sales made by or on behalf of its third-party sellers or … comply with reporting and customer notification requirements.”
Eligible marketplace facilitators (and other remote sellers) are entitled to collect the 8 percent Simplified Sellers Use Tax (SSUT) on all transactions, rather than the combined state and local rates that vary by jurisdiction.
Additionally, Alabama allows marketplace facilitators to opt out of collecting sales tax, provided they comply with certain notice and reporting requirements. Those electing to take advantage of this option must notify the department on or before January 31, 2019, if they exceeded the $250,000 threshold during the 2018 calendar year. To learn more about notice and reporting responsibilities for non-participating marketplace facilitators, see Alabama Department of Revenue Sales and Use Tax Rule 810-6-2-.90.04.
According to the Iowa Department of Revenue, “Marketplace facilitators must begin collecting Iowa sales tax and applicable local option sales tax on January 1, 2019 if the marketplace facilitator did either of the following in calendar year 2018:
- Made or facilitated Iowa sales of $100,000 or more; or
- Made or facilitated Iowa sales in 200 or more separate transactions.”
Once this threshold has been met, the facilitator must collect sales tax on behalf of all third-party sellers, regardless of the volume of their sales. The department reminds that auctions, consignments stores, and online marketplaces are all considered to be marketplace facilitators.
Marketplace facilitator sales tax laws adopted by more than a dozen states
Laws targeting marketplace sales first hit the scene in 2017, shortly after Amazon started collecting sales tax in all sales tax states. It then became clear that while the ecommerce giant was taxing sales of its own products, it wasn’t charging customers tax on third-party, or marketplace, sales. Given that more than half of all Amazon transactions occur through its marketplace, a significant portion of sales were going untaxed.
Amazon isn’t alone. Many other marketplace facilitators share the opinion they’re not the actual seller — they merely provide the platform that facilitates sales — and therefore aren’t responsible for collecting the sales tax. They maintain marketplace sellers should be held liable for that tax.
For their part, states just want the revenue. To capture it more effectively, more than a dozen states have adopted a marketplace facilitator sales tax policy. They’re listed below (with effective date):
- Alabama, January 1, 2019
- Arizona, September 20, 2016
- Connecticut, December 1, 2018
- Iowa, January 1, 2019
- Minnesota, October 1, 2018
- New Jersey, November 1, 2018
- Oklahoma, July 1, 2018
- Pennsylvania, March 1, 2018
- Rhode Island, January 15, 2018 (reporting requirements for retail sale facilitators)
- South Dakota, March 1, 2019
- Virginia, June 1, 2017 (seller is responsible, not the facilitator)
- Washington, October 1, 2018
- Washington, D.C., April 1, 2019 (enforcement depends on approval of the mayor)
Some of the above are based on department of revenue policies or rulings, not state legislation, and not all marketplaces comply with all of them. For example, Amazon currently recognizes and complies with marketplace facilitator legislation in Connecticut, Minnesota, New Jersey, Oklahoma, Pennsylvania, and Washington; Etsy collects and remits on behalf of sellers in Minnesota, Oklahoma, Pennsylvania, and Washington. Other marketplaces take different approaches.
States can tax remote sales
Whereas states were once prohibited from imposing a sales tax collection obligation on businesses with no physical presence in the state, they now have the authority to tax remote sales. On June 21, 2018, the Supreme Court of the United States overruled the physical presence requirement. In its decision in South Dakota v. Wayfair, Inc., the court found the remote sellers’ “economic and virtual contacts” with the state to be sufficient enough to establish a sales tax collection obligation. This is economic nexus.
More than 30 states now have economic nexus policies in place, including California and Texas, and many others are looking to establish a policy of their own. Furthermore, both the Alabama and Iowa marketplace facilitator sales tax policies contain economic nexus provisions: Marketplace providers are only required to collect and remit tax once they surpass a certain sales threshold in each state.