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Marketplace Facilitator Tax: Sales Tax Collection Legislation

Team Zentail
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October 18, 2018
February 10, 2019

Following up the Dakota v. Wayfair Supreme Court ruling which paves the way for states to collect sales tax from merchants that do not have physical nexus, it's important to understand a major trend in marketplace sales tax collection; Marketplace Facilitator* law.

A Marketplace Facilitator is defined as a marketplace that contracts with third party sellers to promote their sale of physical property, digital goods, and services through the marketplace.

Marketplace Facilitator legislation is a set of laws that shifts the sales tax collection and remittance obligations from a third party seller to the marketplace facilitator. For example, if you sell on Amazon's marketplace, Amazon will be responsible for calculating, collecting, and remitting tax on sales of your products shipping to states where Marketplace Facilitator and/or Marketplace collection legislation is enacted.

States in which Marketplace Facilitator Tax is in effect:

<table class="tg">  
 <tbody><tr>
   <th class="tg-oqcu">State</th>
   <th class="tg-oqcu">State Code</th>
   <th class="tg-bi0v">Legislation Code</th>
   <th class="tg-vt7v">State Legistlation </th>
 </tr>
 <tr>
   <td class="tg-p883">Alabama</td>
   <td class="tg-wg37">AL</td>
   <td class="tg-wg37">Ala. Act 2018-539</td>
   <td class="tg-wg37"><a href="https://revenue.alabama.gov/2018/07/03/ador-announces-sales-and-use-tax-guidance-for-online-sellers/">revenue.alabama.gov</a></td>
 </tr>
 <tr>
   <td class="tg-p883">Connecticut</td>
   <td class="tg-wg37">CT</td>
   <td class="tg-wg37">SB 407</td>
   <td class="tg-wg37"><a href="http://www.ct.gov/drs/lib/drs/publications/pubssn/2018/sn2018-5.pdf">ct.gov/drs</a></td>
 </tr>
 <tr>
   <td class="tg-p883">Iowa</td>
   <td class="tg-wg37">IA</td>
   <td class="tg-wg37">SF2417</td>
   <td class="tg-wg37"><a href="https://www.legis.iowa.gov/legislation/BillBook?ba=SF2417&amp;ga=87">legis.iowa.gov</a></td>
 </tr>
 <tr>
   <td class="tg-6dxm">Minnesota</td>
   <td class="tg-65i8">MN</td>
   <td class="tg-wg37">297A.66</td>
   <td class="tg-ne13"><a href="http://www.revenue.state.mn.us/businesses/sut/Pages/Marketplace-Providers.aspx">revenue.state.mn.us</a></td>
 </tr>
 <tr>
   <td class="tg-p883">New Jersey</td>
   <td class="tg-wg37">NJ</td>
   <td class="tg-wg37">A-4496</td>
   <td class="tg-wg37"><a href="https://www.njleg.state.nj.us/2018/Bills/A4500/4496_I1.HTM">njleg.state.nj.us</a></td>
 </tr>
 <tr>
   <td class="tg-6dxm">Oklahoma</td>
   <td class="tg-65i8">OK</td>
   <td class="tg-wg37">HB 1019xx</td>
   <td class="tg-ne13"><a href="https://www.ok.gov/tax/documents/News_Rls_083118.pdf">ok.gov/tax</a></td>
 </tr>
 <tr>
   <td class="tg-6dxm">Pennsylvania</td>
   <td class="tg-65i8">PA</td>
   <td class="tg-wg37">Tax Reform Code of 1971 P.L. 672, No. 43</td>
   <td class="tg-ne13"><a href="https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Types%20and%20Information/SUT/MarketPlaceSales/Pages/Marketplace-Facilitators.aspx">revenue.pa.gov</a></td>
 </tr>
 <tr>
   <td class="tg-6dxm">Washington</td>
   <td class="tg-65i8">WA</td>
   <td class="tg-wg37">82.13 RCW</td>
   <td class="tg-ne13"><a href="https://dor.wa.gov/find-taxes-rates/retail-sales-tax/marketplace-fairness-leveling-playing-field/marketplace-facilitators">dor.wa.gov</a></td>
 </tr>
</tbody></table>


To summarize: for orders shipping to the Marketplace facilitator states listed above (even if the state may not have previously required a merchant to apply tax), effective as soon as January 1, 2019, marketplaces will no longer disburse sales taxes to the merchant, and will instead collect and remit the tax directly to state tax authorities.

Compared to requiring individual sellers to register, collect and remit sales tax to a growing number of states, the Marketplace Facilitator tax collection framework is a much more elegant solution.

Moving forward, we expect:

  1. More states will adopt the Marketplace Facilitator tax collection framework.
  2. Consumers will pay sales tax on more of their purchases.
  3. More of your marketplace orders will be subject to sales tax.
  4. Your concerns about needing to manage your own sales tax compliance for marketplace sales should subside, though sales on your own website may be subject to similar non-nexus sales tax liability.

Resources:

Written by:

Team Zentail