We talk a lot about nexus and compliance processes in our content, but what about marketplace facilitators? In this blog we answer your top questions about marketplace facilitators.
What is a marketplace facilitator?
States’ definitions of a “marketplace facilitator” vary almost as much as states’ sales tax laws themselves. Generally, this is a business or organization that contracts with third-party businesses to sell goods and services on its platform and facilitates retail sales. Marketplace facilitators enable these sales by listing the products, taking the payments, collecting receipts and in some cases assisting in shipment. Well-known examples include Amazon, eBay, and Etsy.
Why have states added marketplace facilitator laws?
All states with sales tax also have marketplace facilitator laws requiring marketplaces to collect sales tax for their sellers.
Laws governing marketplace facilitators popped up when states saw that platforms were charging sales tax on the sale of their own or certain third-party sales but not on all sales. This produced a gap in tax collection. Marketplace facilitator laws also sprang from the idea that a state could collect all the required sales tax from one entity rather than from thousands of smaller companies – which is a lot easier from the states’ perspective.
If the facilitator meets the economic nexus threshold – in many states, these thresholds are the same as for sellers who aren’t marketplace facilitators – the facilitator must calculate and charge tax on those sales that it processes and facilitates.
What are your responsibilities?
Marketplace facilitator tax laws mean that your facilitator will handle collecting and remitting sales taxes on behalf of your sales in states where your marketplace is compliant.
If you are selling products or services off your own site as well as through a marketplace facilitator, you need to consider the total sales through both the marketplace facilitator and your own site to determine if you have crossed any economic nexus thresholds and must collect and remit sales tax on your own sales.
Also, as a marketplace seller you can have a physical presence and an obligation to collect and remit sales or use tax in states where the facilitator stores your inventory for sale.
What about physical nexus?
For online retailers, one wrinkle concerning marketplace facilitators is inventory. A facilitator such as Amazon might have warehouses in many states and may store the inventory of its sellers in many tax jurisdictions. The problem: Stored inventory can trigger physical nexus for a retailer.
States may, however, be easing off. Beginning in 2021 in Illinois, a remote retailer’s inventory at the in-state location of a marketplace facilitator no longer created physical nexus when the inventory was used exclusively to fulfill orders made over a marketplace.
And the following year, a Pennsylvania court ruled that non-Pennsylvania businesses selling through the Amazon FBA Program and whose connections to Pennsylvania were only shown to be limited to the storage of merchandise by Amazon in one of the facilitator’s warehouses in the state did not constitute physical nexus.
We predict more states won’t pressure companies with only physical nexus over facilitator warehoused inventory.
At TaxConnex, our goal is to take sales tax off your plate but also to be a resource to you. Marketplace facilitator laws change constantly, and now it’s even more important to have a resource to help you understand your sales tax obligations. If you have a question, please reach out.
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