Marketplaces to collect sales tax on behalf of their sellers in 11 more states, and counting
- Apr 16, 2019
Last updated 6.4.2019
Update 4.29.2019: And California makes 12.
In recent weeks, 11 states have enacted legislation requiring marketplace platform providers like Amazon and eBay to collect and remit sales or use tax on behalf of their marketplace sellers: Arkansas, Hawaii, Idaho, Kentucky, Nebraska, New Mexico, New York, North Dakota, Rhode Island, Virginia, and West Virginia. Similar legislation is under consideration in — and likely to be adopted by — approximately 11 more states, including California and Texas.
An online marketplace provides a platform through which, for a fee and/or commission, independent sellers can market and sell their wares. Some marketplaces, like Amazon and Walmart, sell their own products in addition to those sold by third-party sellers. Other marketplaces may function uniquely as a platform for other sellers.
Marketplace laws have a different impact on marketplace providers and the businesses that sell through these platforms. In the 11 states listed above, plus other states with a marketplace sales tax law, the bulk of the duties related to sales and use tax compliance fall on the marketplace provider.
How marketplace sales tax laws affect marketplace providers
In states that have adopted a marketplace law, marketplace providers or facilitators are responsible for sales tax on all sales made in the state through the platform. That means state tax authorities expect them to register as a seller, collect tax, file returns, remit tax, and accept exemption or resale certificates from customers to substantiate exempt sales. It also gives the marketplace the right to receive any credit or refund allowed by law.
As the marketplace facilitator is subject to audit with respect to all retail sales made through the marketplace, it’s required to keep records and cooperate with the tax administrator to ensure the proper amount of tax was collected and remitted. In the event the marketplace facilitator is audited, the tax administrator is generally prohibited from auditing the marketplace seller for the same retail sales.
However, if the marketplace can demonstrate to the tax administrator’s satisfaction that it made a reasonable effort to obtain accurate information from the seller, and that any failure to collect and pay the correct amount of sales tax was the result of reliance on erroneous information provided by the seller, the facilitator may be relieved of liability. In this case, the marketplace seller would be liable for the tax.
Marketplace sales tax laws generally protect marketplaces from class actions made on behalf of purchasers due to an overpayment of sales or use tax collected by the marketplace facilitator.
Exception for small remote marketplace providers. Many states that impose a sales tax collection requirement on remote marketplace providers allow an exception for smaller remote marketplaces. In New Mexico, for example, a remote marketplace facilitator with less than $100,000 in annual taxable gross receipts from sales made or facilitated in the state isn’t required to register and collect. In New York, a remote marketplace is only required to collect and remit sales tax if it has more than $300,000 from cumulative total gross receipts from sales facilitated or made in the state in the preceding four quarterly periods. Small seller exceptions (also called the economic nexus threshold) vary by state.
In most states, a marketplace facilitator must collect and remit tax on all sales made through the platform once it surpasses the economic nexus threshold. However, in Minnesota, marketplace providers don’t have to collect sales tax on behalf of a marketplace seller if the seller’s taxable retail sales into Minnesota through the marketplace are less than $10,000 in a 12-month period.
How marketplace sales tax laws affect marketplace sellers
Marketplace sales tax laws generally make sales tax compliance easier for remote marketplace sellers. In some states, such as Alabama, individual marketplace sellers aren’t required to register with the state or file returns because the marketplace facilitator is considered the seller. Of course, if they make sales through other channels, such as their own ecommerce store, they must register, collect and remit sales tax, and file returns as required by law. (In-state sellers may have other licensing and reporting obligations in the state.)
In other states, remote marketplace sellers may have to register and comply with reporting requirements. For example, in Connecticut, marketplace sellers that exceed the economic nexus threshold must register with the Connecticut Department of Revenue Services and file an annual return, reporting all Connecticut sales and deducting sales for which the marketplace provider collected tax.
Exception for small remote marketplace sellers. Some states that impose a registration and reporting duty on marketplace sellers may provide an exception for small marketplace sellers. This is the case in Connecticut, which allows an exception for marketplace sellers that don’t meet the economic nexus threshold.
Effective dates for new marketplace sales tax laws
New sales tax collection and reporting requirements for marketplace facilitators take effect as follows:
- Arkansas: July 1, 2019
- Hawaii: January 1, 2020
- Idaho: June 1, 2019
- Kentucky: July 1, 2019
- Nebraska: April 1, 2019
- New Mexico: July 1, 2019
- New York: June 1, 2019 (announced May 31, 2019)
- North Dakota: October 1, 2019
- Rhode Island: 90 days from enactment on March 29, 2019
- Virginia: July 1, 2019
- West Virginia: July 1, 2019