We talk a lot about nexus and compliance processes in our content, but what about marketplace facilitators? In this blog we answer your top questions about marketplace facilitators.
What is a marketplace facilitator?
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. Well-known examples include Amazon, eBay, and Etsy.
Why are states adding marketplace facilitator laws?
Laws governing marketplace facilitators popped up 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. This produced a gap in tax collection. 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 – which is a lot easier from the states’ perspective.
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 that it processes and facilitates.
What are the details of marketplace facilitator laws?
Most states with economic nexus laws also employ marketplace facilitator laws (it is best to consult with a sales tax expert or CPA to find the most updated laws). Recently Hawaii, Texas, Wisconsin, Illinois, Michigan, Iowa, Louisiana and North Carolina added laws.
States also frequently tinker with their facilitator laws. Recently Wisconsin, for example, updated guidance that states that marketplace providers are responsible for collection and remittance of the Wisconsin premier resort taxes. Michigan and Minnesota have 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 of sales and use tax collection requirements for marketplace sellers and facilitators who don’t have a physical presence in the state.
Marketplace facilitators do sometimes have their own nexus concerns over gross receipts. New sales tax collection and remittance requirements in Kansas, for instance, apply to marketplace facilitators with calendar year sales sourced into the state exceeding $100,000 of “cumulative gross receipts,” which includes both the marketplace facilitator’s sales of its own property and services and the sales it facilitates on its platform.
What are your responsibilities?
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.
If you are selling products or services off your own site as well as through a marketplace facilitator, you may need to consider the total sales through both the marketplace facilitator and your own site to determine if you have crossed any economic nexus thresholds and must collect and remit sales tax on your own sales.
This only becomes important when a state has both marketplace facilitator laws and economic nexus laws. This is now most states, though some, like Florida, do not count sales through a marketplace facilitator when determining the threshold for economic nexus.
Also, as a marketplace seller you can have a physical presence and an obligation to collect and remit sales or use tax in states where the facilitator stores your inventory for sale.
What else should I know?
- 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.
At TaxConnex, our goal is to take sales tax off your plate but also to be a resource to you. Marketplace facilitator laws change constantly, and now it’s even more important to have a resource to help you understand your sales tax obligations. If you have a question, please reach out.
Learn more about marketplace facilitators on our “Hot Topic” webinar.