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What You Need To Know About Marketplace Facilitator Legislation



What You Need To Know About Marketplace Facilitator Legislation

As the digital economy continues to expand and online shopping becomes the norm, marketplace facilitator legislation has already been implemented by a number of states across the country. Of those states that don’t currently have marketplace facilitator legislation, many are in the process of implementing it.

The laws that are currently enacted vary on a state by state basis, which has created confusion for sellers and marketplaces alike. As a result, there have been a number of marketplace facilitators that have appealed to state courts regarding the legislation.

What is a Marketplace Facilitator?

So what exactly is a marketplace facilitator?

A marketplace facilitator is an online marketplace, such as Amazon, Etsy or Walmart, which facilitates the sale of goods from third-party sellers. Companies who sell through marketplaces are able to reach a much larger audience than if they only sold through their own websites. What we are seeing with our own client base is that many more companies are marketplace facilitators than the initial legislation seemed to target. And, because there are many creative ways to sell products, it is actually sometime unclear if a company is a marketplace facilitator, which adds some challenge for online sellers.

What Does Marketplace Facilitator Legislation Target?

When a state or other municipality implements marketplace facilitator legislation, it is to require them, rather than the marketplace seller, to manage the collection and remittance of sales and use tax on behalf of their sellers. The main motivation for these laws is to reduce the amount of sales tax dollars that go uncollected, as well as easing the burden on states when handling sales tax returns. Specifically, it is easier to handle collections and sales tax returns from several large companies than having to manage many small returns from marketplace sellers.

Dissent from Marketplace Facilitators

As a result of marketplace facilitator legislation, many companies are going to court in an attempt to challenge these laws.

In a recent case, Walmart Inc. appealed to the Louisiana Supreme Court, and won its case that they are not a “dealer” obligated to remit sales tax on products sold by third-party sellers on its website. As a result of this decision, the burden of remitting sale tax falls to the third-party sellers that make sales through Walmart.com.

This outcome is in direct contrast to a 2019 case that saw Amazon filing a lawsuit against the South Carolina Department of Revenue after being handed a bill for approx. $12.5 million in unpaid sales tax, interest and penalties. In September 2019, a South Carolina judge ruled in favor of South Carolina, disagreeing with Amazon’s view that marketplace sellers were liable for the tax.

What Does the Future of Marketplace Facilitation Look Like?

It’s hard to say what 2020 may hold for marketplace facilitator legislation. As states continue to implement laws and legal battles are held, changes may come very quickly. A consensus between states in order to reduce the burden of remitting sales tax may yet come, though there has not been significant progress made on that front.

Regardless, as stated by Digital Commerce 360, there’s a good reason that states are continuing to implement and fight for this type of legislation: the laws generate significant revenue.

Do You Have Questions? Contact Monika Miles.

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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