In recent years, ecommerce and the sales tax implications of running such a business have become significantly more intricate and complex. Where once physical nexus laws and a limited number of outlets on which to sell goods made the process relatively simple, there are now dozens new regulations, laws and requirements, all of which vary by state and municipality.
In addition to the recent spate of new affiliate nexus laws being implemented following the June 2018 Supreme Court Wayfair decision, marketplace facilitator laws are impacting how and when both large ecommerce sites with marketplaces and smaller, third party companies are expected to collect and remit sales tax. Let’s take a closer look at what these laws do and how they might impact retailers.
What Are Marketplace Facilitator Laws?
A marketplace facilitator is a company that operates a marketplace on a platform much larger than third party vendors would be able to build on their own. Those third-party sellers are then able to sell goods and services through that platform, reaching a much larger audience than they otherwise could. Amazon is the world’s largest marketplace facilitator, home to hundreds of thousands of third-party vendors who use Amazon’s technology to list products, collect payments, and in certain cases, ship products from Amazon’s fulfillment centers.
Marketplace facilitator laws have been implemented in several states, including Connecticut, Minnesota, Oklahoma, Washington, Pennsylvania, Iowa, and Alabama. These laws require that the marketplace facilitator take over the role of collecting and remitting sales tax on behalf of these third-party vendors. For the states, the law is a way to streamline and simplify the process of collecting sales tax. Instead of processing returns from tens of thousands of sellers from around the country, they interact with only a handful of these larger facilitators (who facilitate a minimum of $250,000 in retail sales per year). It’s a lot easier to deal with a multi-million-dollar Amazon sales tax return than 15,000 small returns from vendors scattered across the country.
How Marketplace Facilitator Laws Impact Retailers
On their face, these laws seem like a good thing for retailers. Now on the hook for collecting sales tax in more than 30 states, it’s becoming increasingly complex to manage these processes.
These new laws offer significant benefits to states that worry about compliance with all of these complicated laws. It basically ensures compliance throughout the state and increases the overall tax revenue collected. For retailers, while collecting that sales tax may not be required in these states, there are still responsibilities. It’s generally agreed upon that these vendors should maintain their sales tax permits in each state, and in most cases are required to file a zero return if they only sell in that state through the marketplace facilitator. If they do physical business or have their own online store in that state, they will still need to file for those other sales.
In terms of which types of sales this impacts, for most states, these laws have just recently gone into effect or will be going into effect in 2019 and largely affect those who sell on Amazon and eBay – the largest marketplace facilitators in the US and the only two that consistently breach the thresholds set by these states. Other marketplaces covered by the laws in some states (but not all with marketplace facilitator laws), include Etsy and Walmart.
Each of these states has its own reporting requirements for the third-party seller, so it’s important to research their laws and understand when and at what thresholds you need to acquire a permit and file sales tax returns in those states, even if you sell exclusively through these marketplaces.
The Current and Future Impact of Marketplace Facilitator Laws
While there are currently only a handful of states with marketplace facilitator laws, it is expected that more will follow as the benefits of simplifying the tax collection process and vastly improving upon compliance rates are seen in other states, especially those that are passing their own affiliate nexus laws.
Whether you sell into one of these states or not, be aware of the impact that your operations on any third-party marketplace might have on your sales tax collection processes. Laws are changing quickly, and requirements are rarely consistent across state lines. As state governments acclimate to the new law of the land, it’s important to be vigilant and ready for whatever changes might come.