Online sellers hear an endless amount these days about “marketplace facilitators.” What are they? How can they help you? And how can they hurt?
A marketplace facilitator is a platform where third-party sellers of any size and geographic area can facilitate retail sales by listing their products, while the marketplace facilitator processes payments, collects receipts and in some cases assists in shipment. In the world of sales tax, household names like Amazon, eBay and Etsy are major marketplace facilitators.
Such big-name platforms can boost the sales of most companies who sell products on their sites. Not only that, the marketplace facilitator in many situations assumes the responsibility for collecting and remitting the applicable sales tax.
If the facilitator meets the economic nexus threshold – and in many states, these thresholds are the same as for sellers who aren’t marketplace facilitators – the facilitator has the responsibility to calculate and charge tax on those sales that it processes and facilitates.
That takes a burden off you, the seller.
But there are, as always in the world of sales tax, conditions.
Evolution of facilitators’ obligations
As market conditions continued to evolve and more and more buyers moved their purchasing options online, states started to introduce the concept of economic nexus – especially after the Supreme Court’s 2018 ruling in the South Dakota vs. Wayfair case.
Marketplace facilitator laws grew from the idea that a state could collect all the required sales tax from one entity rather than from thousands of smaller companies, saving expense and time. Most states now have marketplace facilitator laws, though definitions of a “marketplace facilitator” vary almost as much as do states’ sales tax laws.
These laws also continue to evolve. Most recently, Michigan and Minnesota issued guidance on sales and use tax nexus applicable to marketplace facilitators and sellers, clarifying when facilitators have sales tax obligations. Nevada has also proposed draft regulations implementing sales and use tax collection requirements for marketplace sellers and facilitators who don’t have a physical presence in the state. Missouri, whose economic laws have been approved but not yet put into effect, also has no marketplace facilitator laws until January 1, 2023.
It is best to consult with a sales tax expert or CPA to find the most updated laws.
When it gets complicated
According to the Nevada proposal, if the marketplace seller makes sales through an unregistered marketplace facilitator, the marketplace seller must register, collect and remit tax on those sales.
In states with these laws in place, the online seller doesn’t have to worry about collecting tax for sales made through that marketplace. The facilitator is responsible for doing this.
However, you do need to monitor these sales if you are also selling through avenues outside of a marketplace, such as your own website or through other sales channels. Even though the marketplace is collecting and remitting the tax on their platform, these sales need to be accounted for to determine whether you’ve reached economic nexus thresholds. Gross receipts can and usually do count toward economic nexus thresholds.
Gross receipts of sales through a marketplace facilitator can be a significant portion of sales for a seller. Businesses selling products or services via their own site as well as through a marketplace facilitator may have nexus in more states than they realize.
(Learn more about marketplace facilitators on our recent “Hot Topic” webinar.)
- Some states may let facilitators opt out of marketplace facilitator laws if they comply with other tax reporting.
- In some states, facilitators must file separate returns for direct sales and indirect sales.
- Sellers should be able to easily pull sales tax reports from facilitators’ platform to file their own sales tax returns when/if necessary.
If sales tax has become too confusing and you’re selling through multiple channels, including a marketplace facilitator, it’s important to understand how your sales tax obligation could grow. If you’re looking to get this burden off your plate, think about outsourcing your sales tax! Talk to TaxConnex to see how our dedicated practitioners can manage the complexity so you don’t have to.
Multi-Channel selling is confusing – sign up for our webinar on 4/27 on the sales tax obligations associated with selling via multiple channels.