How Marketplace Facilitator Sales Tax Laws in Different States Affect Sellersby
Wyoming just joined more than a dozen states in imposing a sales tax collection obligation on marketplace facilitators. In addition to collecting and remitting tax on their own sales into the state, if they have any, marketplace facilitators will soon be responsible for collecting and remitting Wyoming sales tax on all sales made through the marketplace.
We should expect every state to have a law like this by this time next year.
This is a trend that’s been growing since the Supreme Court of the United States overruled a long-standing physical presence rule, thereby authorizing states to tax remote sales. Prior to the ruling in South Dakota v. Wayfair, Inc., a small handful of states required marketplace facilitators to collect and remit tax on all sales into the state — but they generally allowed them to opt out by complying with notice and reporting requirements.
Now that states are no longer prohibited from taxing remote sales, they’re looking for the most efficient ways to bring in remote sales tax revenue. Approximately 35 states have adopted economic nexus laws, which impose a sales tax collection obligation on businesses with significant economic activity in the state. Such economic nexus laws generally provide an exception for small sellers (defined differently in different states).
Many marketplace sellers qualify for these small seller exceptions, meaning they’re safe from the long arms of the tax authorities. But states that require marketplace facilitators to collect and remit sales tax on behalf of their sellers still reap revenue from those transactions. It’s a win-win for states, which is why we can expect to see marketplace facilitator sales tax laws proliferate.
It’s important to note that marketplace sellers aren’t necessarily freed from all responsibilities under these laws. In fact, these laws can complicate matters a bit because they change the rules. Ordinarily, businesses that don’t have nexus with a state (an obligation to collect sales tax) don’t have reporting requirements. That’s not the case with all marketplace facilitator sales tax laws, as you’ll see below.
State-by-state guide to marketplace facilitator sales tax laws
The effect of state marketplace facilitator sales tax laws on marketplace sellers are described below with broad brushstrokes. As always, you should consult with a tax advisor or state tax authorities to determine how the laws apply to your particular situation.
Alabama (effective January 1, 2019)
Remote sellers who can demonstrate that a marketplace facilitator is collecting and remitting SSUT or sales tax on their Alabama sales are relieved of the requirements imposed by rule 810-6-2-.90.03.
Arizona (effective September 20, 2016)
An online marketplace is generally considered a retailer conducting taxable sales and must collect and remit Arizona transaction privilege tax (TPT) “provided that the business already has nexus for Arizona TPT purposes.”
Connecticut (effective December 1, 2018)
- Marketplace sellers that exceed Connecticut's economic nexus thresholds must register and file an annual return
- Marketplace sellers must report all Connecticut sales
- Marketplace sellers must deduct their marketplace sales if a marketplace facilitator collected tax on their behalf
Iowa (effective January 1, 2019):
- Marketplace sellers that only make sales through a marketplace don’t need to obtain an Iowa sales tax permit or file Iowa sales tax returns when Iowa sales tax will be reported and paid on a sales tax return filed by the marketplace facilitator.
- Marketplace sellers that exceed the small remote seller exception must register and collect Iowa sales tax on retail sales made through the marketplace if a marketplace facilitator isn’t required to collect Iowa sales tax. Marketplace sellers should contact the marketplaces through which they make sales to determine when the marketplace will begin collecting Iowa sales tax.
- Remote sellers that make marketplace and non-marketplace sales into Iowa have to register and collect Iowa sales tax on non-marketplace sales if their total sales into the state exceed the small remote seller exception.
- Iowa sellers that make marketplace and non-marketplace sales must report all sales but may take a deduction for the sales on which the marketplace facilitator collected Iowa sales tax.
Minnesota (effective October 1, 2018)
Marketplace providers maintaining a place of business in Minnesota “must register and begin collecting Minnesota sales tax on behalf of remote sellers using their marketplace” unless any of the following are true:
- The remote seller makes taxable retail sales into Minnesota through the marketplace of less than $10,000 in a 12-month period ending on the most recently completed calendar quarter
- The remote seller elects to register and collect Minnesota sales tax directly and does not enter into an agreement with the marketplace provider for the marketplace to collect and remit Minnesota sales tax on behalf of the remote seller
Remote sellers that only make taxable sales into Minnesota through a marketplace don’t need to register and collect Minnesota sales tax if the marketplace is collecting and remitting it on their behalf.
Minnesota sellers should continue to collect and remit unless they enter into an agreement with the marketplace provider under which the provider collects/remits tax on their behalf.
New Jersey (effective November 1, 2018)
- “Marketplace sellers are not required to collect and remit sales tax on the sale of tangible personal property, specified digital products, or services delivered into New Jersey when a marketplace facilitator is required to collect and remit sales tax on the transaction.”
- A marketplace facilitator is required to collect and remit sales tax on sales made through the marketplace “even if the marketplace seller is registered with New Jersey for the collection and remittance of sales tax. However, a marketplace facilitator and marketplace seller are permitted to enter into an agreement with each other regarding the collection and remittance of sales tax.”
Oklahoma (effective July 1, 2018)
- “Remote sellers do not need to [register or] collect sales tax when a marketplace facilitator [or referrer] is collecting and remitting the tax for them.”
- “Marketplace facilitators must register and begin collecting Oklahoma sales tax on behalf of remote sellers or report those sales to the Tax Commission.”
- If the marketplace facilitator doesn’t collect tax on behalf of a seller, the seller must register with the tax department and collect and remit tax unless it qualifies for the small seller exception.
Pennsylvania (effective March 1, 2018)
- Marketplace sellers with a place of business in Pennsylvania must “ensure the collection and remittance of sales tax on its taxable sales in Pennsylvania. The obligation may be met directly by the marketplace seller … or by its marketplace facilitator.”
- Marketplace sellers with a place of business in Pennsylvania must maintain records that substantiate the tax was properly charged by the marketplace facilitator.
- Marketplace sellers who don’t maintain a place of business in Pennsylvania may be subject to the remote seller provisions if they make sales through a marketplace facilitator and direct taxable sales to Pennsylvania customers exceed the small seller exception.
- Marketplace facilitators maintaining a place of business in Pennsylvania must collect on behalf of marketplace sellers.
- Marketplace facilitators with no physical presence in Pennsylvania must make an election to register to collect and remit Pennsylvania sales tax on all sales into Pennsylvania or comply with Pennsylvania notice and reporting requirements
South Carolina (effective November 1, 2018)
- Marketplace facilitators are considered the seller responsible for collecting and remitting South Carolina sales tax.
- Remote sellers that only sell via a third-party marketplace are not considered to be a retailer under South Carolina law and are not required to obtain a retail license or collect South Carolina sales and use tax.
The South Carolina Department of Revenue is currently in litigation with Amazon Services, LLC, over South Carolina’s marketplace sales tax law. The department will provide additional guidance once the suit has been resolved. In the meantime, it encourages remote sellers to voluntarily register to collect and remit sales tax. Those that do will be entitled to a timely filing and payment discount.
South Dakota (effective March 1, 2019)
- Marketplace providers that exceed the small seller exception are required to remit sales tax on all sales facilitated into South Dakota.
- If a marketplace is remitting the sales tax for a South Dakota business, the South Dakota business “will not be responsible for sales tax remittance on sales through that marketplace.”
- Remote sellers surpassing the small seller threshold are required to collect and remit South Dakota sales tax unless a marketplace provider is collecting it.
Washington (effective January 1, 2018, with additional requirements effective October 1, 2018)
- Remote marketplace sellers with economic nexus with Washington are required to register with the state and collect and remit tax on all sales in the state. If a marketplace facilitator collects and submits sales tax on behalf of the seller, the seller must take the deduction “Retail Sales Tax Collected by Facilitator.”
- A remote marketplace facilitator with annual retail sales in Washington of $10,000–$100,000 and annual transactions of 199 or less must make an election to collect and remit sales tax on all sales into the state or comply with use tax notice and reporting requirements. Those with economic nexus in the state must register, collect, and submit retail sales tax.
- “Marketplace facilitators must collect/submit sales tax on behalf of marketplace sellers with a physical presence in Washington.” Washington sellers must report sales made through a marketplace and claim the deduction “Retail Sales Tax Collected by Facilitator (101).” Sellers with a physical presence in the state are responsible for sales tax unless they have received confirmation from the facilitator that the facilitator will collect sales tax.
Additional tax reporting and collection obligations may also apply. See the Washington Department of Revenue for additional details.
Washington, D.C. (effective April 1, 2019)
Marketplace facilitators are required to collect and remit sales tax on all sales into the District of Columbia, “regardless of whether the marketplace seller for whom sales are facilitated would have been required to collect sales tax had the sale not been facilitated by the marketplace facilitator."
The DC Office of Tax and Revenue has yet to provide additional guidance.
Wyoming (effective July 1, 2019)
Marketplace facilitators are required to collect and remit sales tax on all sales into the state.
The Wyoming Department of Revenue has yet to provide additional guidance.
Some of the states listed above, including Arizona, are looking at amending or adding to their remote seller and marketplace sales tax laws.
Marketplace sales tax laws with a twist
Rhode Island (effective January 15, 2018)
Rhode Island currently requires certain retail sale facilitators to provide the Rhode Island Division of Taxation with the names and addresses of retailers for whom it did and did not collect Rhode Island sales tax. Recently, the governor proposed requiring marketplace facilitators to collect and remit tax on all their sales into the state.
Virginia (effective June 1, 2017)
Virginia currently requires any dealer with inventory in the state (e.g., in a warehouse owned by a marketplace facilitator) to register to collect retail sales tax. It, too, is looking to require marketplace facilitators to collect and remit tax on behalf of their third-party sellers.
States considering marketplace sales tax laws
Numerous states are looking at considering new marketplace sales tax laws during their 2019 legislative sessions, and the trend is to require facilitators to collect and remit sales tax on all sales into the state.
You’ll find up-to-date information about remote seller and marketplace sales tax laws on the Avalara South Dakota v. Wayfair, Inc. resource page and on the Avalara blog.
Gail Cole is a Senior Writer at Avalara. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals — or anyone interested in learning about tax compliance.