Post Wayfair Ruling Landscape
Are you scratching your head over the new marketplace facilitator laws? If so, we don’t blame you! Due to the post Wayfair rulings, it can be challenging for marketplace sellers to understand the changes and stay compliant with each taxing jurisdiction.
What is a Marketplace Facilitator and Seller?
A marketplace facilitator is an online platform that allows consumers to seamlessly purchase goods directly from the facilitator themselves or third-party companies that sell on the platform. In general, the marketplace facilitator is responsible for every aspect of the sale. On certain platforms, the marketplace facilitator may fulfill the order for the third-party, i.e., Amazon FBA. Popular marketplace facilitators include Amazon, Etsy, eBay, and Wayfair.
Marketplace facilitator laws are state regulations on how facilitators will handle collecting and remitting sales tax on behalf of third-party sellers.
More than 40 states now have marketplace facilitator laws to accommodate the changes of this new rule. As expected, each state has enacted different laws when it comes to remote and in-state marketplace selling. In general, marketplace facilitators are responsible for collecting sales tax on behalf of the marketplace seller when their sales exceed $100,000 or 200 transactions. A marketplace seller is a company that sells on the marketplace facilitators platform. A marketplace seller may or may not have sales tax collection responsibilities. For Amazon purchases, a customer may purchase an item directly from Amazon (marketplace facilitator) or a third-party (marketplace seller). The customer is made aware of this during the purchase process.
Types of Marketplace Sellers
1. Remote Marketplace Seller
A remote marketplace seller is an out-of-state state seller who sells exclusively through a marketplace facilitator, i.e., Amazon, Etsy, eBay, etc.
Since collecting sales tax is now the responsibility of the marketplace facilitator, remote marketplace sellers must be mindful of the different requirements mandated by each state to determine whether to register. Here are some examples of various rules:
Arizona and Maryland do not require the seller to register if they sell only using a marketplace.
Nebraska and Connecticut require the seller to register, report all sales, and take a deduction for the marketplace collection of sales.
North Carolina and New York may require the seller to register if they cross the economic threshold as defined by each state.
One concern remote marketplace sellers may have is what to do if they are already registered. In this instance, the remote marketplace seller should contact the state to confirm which course of action is necessary. For example, Virginia allows sellers to login to their online services account and update as “no longer liable for sales tax.” Doing so will close the account.
2. Remote Multichannel Seller
The seller sells through a marketplace and other channels (e.g., the seller’s website, direct sales, store or phone orders), and has no physical presence in the state.
Most states will require the seller to register and collect sales or use tax if:
Some states require sellers to report all sales on the return but may take a deduction for sales collected by a marketplace facilitator.
Our recommendation is to review how each marketplace collects sales tax on behalf of sellers and in which states they are compliant.
3. In-State Multichannel/Marketplace Seller
The seller has a physical presence in the state.
If the seller has a physical presence in the state, and the seller is using multiple channels to sell their products (including a marketplace facilitator), then the seller is required to register and remit the tax, which is not collected by the marketplace facilitator.
If the seller has a physical presence in the state and only uses a marketplace facilitator to sell their products, then the seller is most likely required to register in the state. However, some states offer various ways to file, such as taking the sales as a deduction under “Sales Tax Collected by a Marketplace Provider” or having the filing frequency changed to annual to help assist with the administration of filing. A few states (e.g., Ohio) offer a seller’s use tax account for registering and reporting the marketplace sales separately from the retail sales.
In every case, we recommend contacting a trusted tax advisor at Source Advisors or the taxing jurisdiction before a decision is made regarding your sales and use tax compliance needs.