Everything You Need to Know About the Latest With Marketplace Facilitators

“Marketplace facilitator” is slowly becoming a familiar term in the sales tax world. What once started as a world of large nebulous platforms where small vendors could reach larger audiences has become thanks, to the likes of household names like Amazon, a more common tool in ecommerce. 

What Is a Marketplace Facilitator?

Tools, like times, change, And what is a marketplace facilitator? States’ tax definitions of a facilitator vary, but generally this is a business or organization that contracts with third-party businesses to sell goods and services on its platform and facilitates retail sales. Marketplace facilitators enable these sales by listing the products, taking the payments, collecting receipts and in some cases assisting in shipment. 

Why States Created Marketplace Facilitator Laws

Laws governing marketplace facilitators began to blossom when states saw that platforms were charging sales tax on the sale of their own or certain third-party sales but not on all sales, potentially a serious gap in tax collection and revenue. Marketplace facilitator laws also sprang from the idea that a state could collect all the required sales tax from one entity rather than from thousands of smaller companies. 

A Changing Tax Environment

If the facilitator meets the economic nexus threshold – in many states, these thresholds are the same as for sellers who aren’t marketplace facilitators – the facilitator must calculate and charge tax on those sales it processes and facilitates. 

Marketplace facilitator tax laws mean that your facilitator will handle collecting and remitting sales taxes on behalf of your sales in states where your marketplace is compliant. States that recently added such laws include Georgia, Florida, Hawaii, Wisconsin, Illinois, Michigan, South Carolina and North Carolina. 

Expanding Scope of Taxable Products and Services

Taxable products and services for facilitators are expanding. For example, some states have expanded marketplace collection to include other taxes and fees such as prepaid wireless 911 fees in Kansas, lead-acid battery and tire fees in Florida), waste-recycling fees in California and retail delivery fees in Colorado. 

Legal Precedents and Audit Risks

The calendar doesn’t always protect facilitators. The Court of Appeals of the State of Washington has denied an appeal of an audit assessment made by two Amazon sellers between 2011 and 2018. These sales were made prior to Washington’s facilitator legislation and made by vendors participating in the Amazon FBA (Fulfillment by Amazon) program, where sellers send inventory to Amazon and allow Amazon to manage movement of that inventory between various warehouses for fulfillment (inventory may create physical nexus in states where the sellers do not otherwise have a presence. 

The appeals court denied the taxpayer’s argument that Amazon was the seller of the goods for purposes of the state’s Business and Occupational tax. 

Recommendations for Marketplace Facilitator Compliance

The Tax Foundation recently published several ideas to improve facilitator compliance. We can look for states to at least explore such recommendations in the near future: 

1. Free Centralized Sales Tax Administration and Integration Capable CSP (or Software).

   Today, most states provide centralized sales tax administration, allowing marketplace facilitators to report and file through a single state-level platform. States that fail to provide free access to a CSP risk exposure to litigation.
   
   

2. Limit Nexus Thresholds to Sales Revenue Only

   Nexus Thresholds for Sellers with No Physical Presence Should Be Limited to Sales Revenue and Should Exclude Transaction Thresholds. Remote sellers and marketplace facilitators without a physical presence may have economic nexus, and therefore, collection and remittance obligations when thresholds are satisfied.  

3. Simplify Registration and Fee Requirements

   Local Registration and Fee Requirements Should Be Avoided. Marketplace facilitators must register in the states in which they are required to collect and remit sales taxes, which is fair. These requirements can become unduly burdensome when marketplace facilitators are required to register (and pay fees) with both state and local governments. State-level registration should be sufficient for localities, and states should remove any local registration and payment requirements. 

4. Limit Remittance Obligations to Sales Taxes

   Remittance Should Be Limited to Sales Taxes. Some states have added obligations to marketplace facilitators that fall beyond the scope of sales and use tax collection and remittance. While states should resist the temptation to require marketplace facilitators to collect and remit non-sales taxes, they should, at a minimum, ensure that all remittance obligations are centrally administered at the state level. 

Stay Compliant with Marketplace Facilitator Tax Rules

Marketplace facilitator laws and other sales tax regulations change constantly, and now it’s even more important to have a resource like TaxConnex to help you understand your sales tax obligations. If you have a question, please reach out.