Minnesota Includes Marketplace Providers When Determining “Maintaining a Place of Business” - Taxify
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Minnesota Includes Marketplace Providers When Determining “Maintaining a Place of Business”


Minnesota Governor Mark Dayton recently signed into law House File 1 (HF1), which includes provisions that would impose sales tax collection and remittance obligations on sales from remote retailers to Minnesota residents.

What does House File 1 do?

HF1 is an omnibus tax bill, meaning it is both very long and very thorough–and therefore not exactly the most stimulating reading. But within its dense text are critical changes to the state’s definition of a “retailer maintaining a place of business in this state.”

Notably, HF1 adds having a “marketplace provider” to the list of in state activities or services that constitute “maintaining a place of business” in Minnesota for sales tax purposes.

HF1 defines a “marketplace provider” as any person who facilitates retail sales by:

  1. listing or advertising in any location taxable goods, services, or digital goods for sale by a retailer; and
  2. either directly, or indirectly through the use of third parties, collecting payment from a customer and transferring it to the retailer, regardless of whether the marketplace provider receives any compensation for its services.

The marketplace provider must also maintain a place of business in Minnesota.

Less legally, this means a marketplace provider is anyone who helps a retailer market or advertise their goods for sale, and then helps the money transfer when an actual sale occurs. Many popular services, such as eBay, Etsy, or Amazon Marketplaces, could be included in this definition–though, they would also need to have a place of business in Minnesota.

There is also a small business exception — this provision only applies to retailers making more than $10,000 in annual sales into Minnesota.

Who bears the burden of remitting sales tax?

HF1 doesn’t actually impose sales tax obligations on retailers using marketplace providers. Instead, it imposes this burden on the marketplace providers themselves. For all sales it facilitates in Minnesota, the marketplace provider is required to collect and remit sales tax to the Department of Revenue.

Marketplace providers can escape this burden, however, if they get notice that retailers using their services are registered to collect and remit Minnesota sales tax. That is, Minnesota doesn’t care if it’s the marketplace provider or the retailer who is bearing the sales tax burden; but if the retailer won’t accept that burden, then the state will require it of the marketplace provider.

What does this change actually do? Like in real life?

Minnesota’s revision of the definition of maintaining a place of business in the state in some ways resembles recent action by the Massachusetts Department of Revenue to include common e-retail practices in its definition of operating in the state for sales tax purposes. States seem to have noticed that revamping existing rules can be an easier way to expand their sales tax requirements, rather than big changes, which are less likely to stand up to scrutiny in the courts.

In Minnesota, the burden will fall on marketplace providers; as in state businesses, Minnesota inherently has jurisdiction over them. However, many marketplace providers may be incapable or unwilling to comply with sales tax collection and remittance requirements.  They may not have the infrastructure or the wherewithal to handle all of their retail clients’ sales. These marketplace providers may refuse to service retailers who don’t do their own sales tax collection and remittance. In this way, the state backs remote sellers into a corner — either accept sales tax burdens, or don’t use possibly vital services in the state.

What is the timing for HF1?

The effects of the definition change won’t be felt for some time. These provisions in HF1 won’t become effective until either July 1, 2019, or until such time that either the U.S. Supreme Court or Congress changes the governing structure under the Quill decision. (Quill was the 1992 Supreme Court case which established the doctrine that a state can impose sales tax burdens only on businesses with sufficient contact, or nexus, with that state.)

While there are several Quill challenges out there — South Dakota and Alabama each have their own active cases — and it would seem that any tax reform bill from Congress would have to include remote seller provisions, it is unlikely that these changes would happen anytime soon. Instead, it seems like Minnesota has just added itself to the long list of states preparing for a time when remote sales are taxable like in state sales.

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