Writer, Blogger, Editor Avalara
Share this content

What are the New Sales Tax Collection Requirements for Marketplaces

New collection requirements for marketplaces are effective in Hawaii, Illinois, Michigan, and Wisconsin as of January 1, 2020, with marketplace facilitator laws now enforced in a whopping 39 states (including Washington, D.C.).

Jan 27th 2020
Writer, Blogger, Editor Avalara
Share this content
small houses on a North America map
kevinjeon00_istock_taxnexus

At this time last year, only seven states required marketplace facilitators to collect and remit sales tax on behalf of third-party sellers, and four of them allowed marketplaces to sidestep the collection requirement by complying with use tax notice and reporting requirements. What a difference one year has made.

Collection requirements for marketplace facilitators generally apply to marketplaces with either a physical presence in the state or substantial sales into the state (economic nexus). Since most state economic nexus laws allow an exception for small sellers, remote marketplaces need to determine whether they’ve crossed the economic nexus threshold; in most cases, marketplaces must include both direct and third-party sales when calculating the threshold in a state.

Marketplaces required to collect are responsible for the tax on their direct sales and sales by all their marketplace sellers. The location of the marketplace seller, whether in state or out of state, doesn’t matter.

How Marketplace Facilitator Laws Impact Marketplace Sellers

Not having to collect and remit sales tax certainly facilitates compliance for marketplace sellers. However, they aren’t necessarily relieved of their duty to register with the tax department or file returns just because facilitators collect and remit the tax on their behalf. That would be too easy.

Registration and reporting requirements for marketplace sellers vary by state, by the seller’s method of sales, and whether the seller has a physical presence in the state or economic nexus. Like marketplace facilitators, marketplace sellers must determine whether they’ve crossed the economic nexus threshold — though state laws are more varied when it comes to whether marketplace sellers should include marketplace sales as well as direct sales when calculating the threshold.

There are often different registration requirements for the following:

•            Remote multichannel sellers: Retailers with no physical presence that sell into the state through a marketplace(s) and other channels.

o            Most states require remote multichannel sellers to register if they have economic nexus.

•            Remote marketplace sellers: Retailers with no physical presence that sell into the state only through a marketplace(s).

o            California, Connecticut, and Hawaii are among the states that require remote marketplace sellers to register if they have economic nexus, even if they only sell through collecting marketplaces.

o            Kentucky, Minnesota, and South Carolina are among the states that don’t require remote marketplace sellers to register, even if they have economic nexus, provided they only sell through collecting marketplaces.

•            In-state multichannel sellers: Retailers with a physical presence in the state that sell into the state through a marketplace(s) and other channels.

o            Most states require in-state multichannel sellers to register.

•            In-state marketplace sellers: Retailers with a physical presence in the state that sell into the state only through a marketplace(s).

o            Hawaii, Illinois, and North Dakota are among the states that require in-state sellers to register, even if they only sell through marketplaces that collect and remit on their behalf.

o            Michigan, Pennsylvania, and Wyoming are among the states that don’t require in-state sellers to register if they only sell through collecting marketplaces.

Related Articles

Why U.S. Leads EU as Marketplace as Tax Collector

What Sellers Should Know About Sales Tax Laws

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.