With the rapid growth of online sales and companies like Amazon and Ebay, marketplace facilitation has become increasingly popular, but is also very complicated. As explained by avalara, states continue to be very aggressive in finding new ways to bring revenue into their state. Many have enacted marketplace facilitator laws, which are laws that regulate marketplace facilitation and vary by state and municipality. As with all things multistate, uniformity is not always the case and different pieces of legislation can get very confusing.
In this post, we review what the idea of marketplace facilitation is, what the marketplace facilitator laws are and how marketplace facilitator laws are impacting retailers.
What is a Marketplace Facilitator?
In an article by accuratetax.com, a marketplace facilitator is defined as a company that operates a marketplace or “selling space” on a large platform (i.e., Amazon or eBay). Companies are then able to sell their products through that platform via the marketplace facilitator. The benefit to these companies is that they are able to reach a much larger audience by selling via the marketplace than if they sold their products on their own. Note though, that many sellers also continue to sell direct to customers through their own website, in addition to the marketplace.
Marketplace Facilitator Laws
Several states have recently implemented Marketplace Facilitator Laws, which are similar to the economic nexus laws we have already talked about in previous blogs. These specify a specific threshold in terms of dollar amount or number of transactions and the specific period that this threshold applies to. The purpose of these laws is to require the marketplace facilitator, rather than the online seller, to manage the collection and remittance of sales and use tax on behalf of their third-party vendors. The premise is that it’s a lot easier for states to handle large sales tax returns from a few large companies than having to manage lots of little tax returns from many companies. And compliance is better!
For example, Utah is one of the latest states to enact a marketplace facilitation law. The details of the law are outlined in an article by the Sales Tax Institute. Utah joins the likes of more than 25 other states that have already enacted similar legislation. Utah’s law became effective on October 1, 2019. Under the legislation, marketplace facilitators are required to collect sales and use tax if the marketplace facilitator makes sales that:
- Exceed $100,000 in gross revenue; or
- Are made in 200 or more separate transactions
If a marketplace facilitator (e.g. Amazon or eBay) does not have physical presence in Utah but meets or exceeds either threshold, they are required to collect and remit sales and use tax on behalf of the online sellers.
Some other states that also had an effective date of October 1, 2019 include AZ, CA, CO, MA, ME, MD, NV, ND, TX and WI. States to take note of that have an effective date of January 1, 2020 include HI, IL and IA. And North Carolina has an effective date of February 1, 2020.
Impact on Third-Party Vendors
Even though a retailer may choose to sell their products through a marketplace facilitator, they still have some filing responsibilities. In most states, even though these third-party vendors are selling through marketplace facilitators, the third-party vendors still need to maintain their sales tax permits in the states and need to file zero returns in those states where the marketplace facilitator sells to.
A Nuance to Consider
We often consult with clients that have multiple sales platforms. They sell via a marketplace (like Amazon), plus have their own website from which they make sales. In this case, if the company exceeds the economic nexus threshold in a state, while its marketplace sales are taken care of via the marketplace facilitator, the company must still deal with collecting, remitting and filing for sales made directly from its own website. This can add to the complexity in reporting even where they thought there would be some relief!
Have a question? Contact Monika Miles.