What You Need to Know: States’ Online Sales Tax and Marketplace Facilitators

Across the country, states continue to update their sales tax laws in an effort to clarify provisions and increase state income. Of course, because company sales extend beyond state borders, it’s extremely important for your business to be aware of various multi-state tax issues and how they may affect your organization.

One major trend we’re seeing (unsurprisingly) is more states’ adoption of economic nexus and online sales tax provisions based on the Wayfair Supreme Court case. In addition, states that had adopted marketplace facilitators as part of their tax code are beginning to clarify their new role. What does this mean? Keep reading for the details!

Marketplace Facilitators: Their Role in State Sales Tax

As this blog post explains, marketplace facilitators are companies that facilitate:

• A seller’s product and payment
• The transaction between a buyer and seller by bringing them together
• The transaction by processing payment, storing inventory, listing products, setting prices, etc.

Amazon and eBay are two prominent companies that are often designated as marketplace facilitators.

Before the Wayfair case, some states like Washington were using these marketplace facilitators to collect and remit sales tax on sellers’ behalf, or provide notice and reporting to help the state collect its taxes.

Marketplace Facilitator Legislation

In the wake of Wayfair, many states are revising their Marketplace Facilitator provisions. Here’s a quick summary of the changes you should know about:

• Arizona’s Department of Revenue had already ruled that marketplace facilitators needed to collect and remit sales tax from sellers, but now its legislature is attempting to make it an official part of the legal code.
• A new bill in Florida would require marketplace facilitators to collect and remit sales tax on all transactions if they and/or their sellers have a physical presence or economic nexus in the state.
• Proposed legislation in Kansas would require marketplace facilitators to collect and remit sales tax for any transactions made by them, or by sellers that have either established physical presence or that meet the threshold requirements.
• Nebraska introduced a bill that establishes a remote seller’s threshold and requires marketplace facilitators that surpass it to collect and remit sales tax on all purchases made through its platform. The bill specifies that the facilitators would need to report the sales tax collected on its behalf as well as on behalf of its sellers, and both the facilitators and sellers could be audited.
• Rhode Island is attempting to close a loophole that gives marketplace facilitators the choice to collect sales tax or not, and instead make it mandatory for the facilitators to collect and remit the taxes.
• Marketplace facilitators with economic nexus in South Dakota are required to collect and remit sales tax on sellers’ behalf, which began March 1, 2019.
• Virginia will require marketplace facilitators with economic nexus to collect and remit sales tax in sellers’ transactions. This change goes into effect on July 1, 2019.

States Adopting Economic Nexus and Online Sales Tax Provisions

The following states are currently working on passing economic nexus and online sales tax provisions:

• Arizona
• Florida
• New Mexico
• Oklahoma
• Tennessee
• Virginia

These states have already enacted online sales tax legislation, but they’re working on revising their provisions:

• Colorado (simplify the current language)
• Georgia (lowering the economic nexus threshold that went into effect January 1, 2019)
• Kansas (broadening online sales tax requirements on digital products)
• Nebraska (give remote sellers additional time to apply with the new remote sales tax law)
• Rhode Island (begin taxing streaming services)

Have a question? Contact Monika Miles.

Author: Monika Miles founded Miles Consulting Group in 2002. The firm focuses on multi-state tax consulting—helping their clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.