Amazon, eBay and Etsy are more than household names. In the world of sales tax, they’re major marketplace facilitators.
A marketplace facilitator is a platform where third-party sellers of any size and geographic area can facilitate retail sales, including the collection/processing of payments, in exchange for compensation. Think of it almost like a consignment shop.
Marketplace facilitators are required to charge sales tax where they have nexus (the connection between a tax authority and a company). 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.
How did this begin?
The evolution of marketplace facilitators’ sales tax obligations resembles the post-Wayfair evolution of nexus requirements for all online sellers.
About 10 years ago, the push began for click-through nexus. New York asserted Amazon had a collection and remittance responsibility due to in-state resources that were directing traffic to Amazon’s website and in return receiving a commission on the sale. As market conditions continued to evolve, and more and more buyers moved their purchasing online, states started to introduce the concept of economic nexus. Once the US Supreme Court ruled in the South Dakota vs. Wayfair case, other states swiftly adopted economic nexus rules. It wasn’t long before states recognized that there was still a large portion of internet-based sales that weren’t being taxed. In comes the marketplace facilitator rules that require the marketplace facilitator to collect and remit sales tax on all third-party sales.
Devil in the details
If you are selling through a marketplace, the majority of states now have these laws in place, including, recently, Georgia, Florida, Hawaii, Wisconsin, Illinois, Michigan, South Carolina and North Carolina. In states with these laws in place, for the most part, you do not have to worry about collecting sales tax for sales through the marketplace, they are responsible for doing this for you.
You do need to monitor these sales if you are also selling through avenues outside of a marketplace, such as your own website, resale, etc.. The reason being? Even though the marketplace is collecting and remitting that tax, these sales need to be accounted for in order to determine whether you have reached certain economic nexus thresholds and thus may need to collect and remit sales tax on your own website.
Specifically, gross receipts can and usually do count toward economic nexus thresholds – and gross receipts of sales through a marketplace facilitator can be a significant portion of sales for a seller. Suppose a seller exactly hits a state’s economic nexus threshold of $100,000 in sales into that state for a year. Of that $100,000, it’s quite possible that $80,000 might come from the site of a marketplace facilitator like Amazon. In short, online businesses selling products or services off of their own site as well as through a marketplace facilitator may have nexus in more states than they realize.
We also see companies that have multiple divisions selling different products, some that do well in e-commerce (potentially through a marketplace) and other products that do better in direct sales. But when a seller has nexus, they have nexus within all of their divisions.
Learn more about marketplace facilitators on our most recent “Hot Topic” webinar.
If you need help understanding your sales tax obligations and whether you should be collecting sales tax, get in touch. TaxConnex has experts to help answer these questions and to help you establish an ongoing process to ensure you remain compliant – even with the frequently changing rules of sales and use tax.