Marketplace sales tax laws are being used by states as an additional means to collect more sales tax revenue from remote sellers on marketplaces like Amazon, eBay, Etsy, and Walmart. These online marketplaces and the rules being introduced to compel marketplace tax compliance have introduced new sales tax collection and remittance questions and complexity.
According to a 2017 UPS and comScore survey, 97% of consumers who shop online do so on marketplaces, however, many marketplace facilitators have no ownership interest in the goods and do not directly provide the product or service offered for sale. In years gone-by, states would have never thought that these businesses could be used as a vehicle to facilitate compliance.
From Amazon to Etsy, an increasing number of small sellers are using these platforms to facilitate the online sales of tangible personal property to a national (sometimes global) customer base. Many of these sellers are too small to ever satisfy the nexus requirements of any state outside of their physical location. But add their collective sales together, and that’s quite a significant sales tax revenue that goes uncollected if the marketplace facilitator is not required to collect tax on their behalf. Placing sales tax collection responsibility on the facilitator (rather than the seller) enables far deeper compliance and does so in a way that’s extraordinarily efficient for the state revenue authority. Whether it’s fair and right to place this burden on marketplace facilitators, is an entirely different question and beyond the scope of this blog.
But while potentially reducing the number of entities states will collect tax from solves part of the complexity, creating rules that satisfy a slew of different marketplace operating models and the fact sellers may use more than one marketplace, still creates a lot of data coming from different sources and (at least in the short term) is creating a patchwork of rules that vary substantially from state-to-state and are not necessarily entirely clear. In today’s world, what marketplace sellers and marketplace facilitators need to do in order to be fully compliant is far from clear.
So what does current marketplace sales tax law look like in the U.S.?
Marketplace Sales Tax Laws in the United States
In the United States, Marketplace rules generally (or should) address:
- The types of activities that constitute a Marketplace Facilitator
- The economic threshold above which a Marketplace Facilitator will incur a tax collection and remittance obligation for customers (note AZ has not passed an economic nexus rule)
- Whether or not Marketplace Sellers can choose to collect tax on their own
- Where legal liability is incurred for inaccurate collection
- How the Marketplace Facilitator reports the tax
- The tax reporting obligations of the Marketplace Seller
Current State of State Marketplace Tax Laws
A list of states that have enacted marketplace facilitator tax laws, include:
- Alabama – effective January 1, 2019
- Arizona – effective September 6, 2016 (amendment pending)
- Arkansas, effective July 1, 2019 (amendment pending)
- California – effective October 1, 2019
- Colorado – effective October 1, 2109
- Connecticut – effective December 1, 2018
- District of Columbia – effective April 1, 2019
- Hawaii – effective January 1, 2020 (amendments pending)
- Idaho – effective June 1, 2019
- Indiana – effective July 4, 2016 (added to by HB 1001 effective July 1, 2019)
- Iowa – effective January 1, 2019
- Kentucky – effective July 1, 2019
- Minnesota – effective October 1, 2018
- Nebraska – effective April 1, 2019
- New Jersey – effective November 1, 2018
- New Mexico – effective July 1, 2019
- North Dakota – effective July 1, 2019 (marketplace facilitators are not required to collect on sales made prior to 10/1/2019)
- Oklahoma – effective April 10, 2018 (amendments pending)
- Pennsylvania – July 1, 2019
- Rhode Island – effective August 17, 2017 (amendments effective July 1, 2019)
- South Carolina – 4/26/2019
- South Dakota – effective March 1, 2019
- Texas – effective October 1, 2019
- Utah – effective October 1, 2019
- Virginia – effective July 1, 2019
- Washington – effective January 1, 2018 (amendments effective March 15, 2019)
- West Virginia – effective July 1, 2019
- Wyoming – effective July 1, 2019
Latest Marketplace Sales Tax News
As of June 1st, Etsy is collecting for 3 additional states, and as of July 1, it will collect for an additional 8 states, according to eCommerce Bytes, bringing the total number of states for which it will collect to 21. eBay has also recently expanded the list of states where it will collect sales tax, including South Dakota and South Carolina.
Marketplace facilitator laws, regardless of how challenging, have been contributing to states’ raising significantly more revenue. Pennsylvania, for example, expects to generate about $200 million in online sales tax revenue through the end of the current fiscal year that ends on June 30.
For the very latest in marketplace sales tax collection obligations, visit the Sovos Regulatory Feed.