Marketplace Facilitator Changes in 2021
If you sell on a Marketplace facilitator such as Amazon, as you know, they now collect and remit sales tax in over 44 Marketplace nexus states (includes D.C. and Alaska at the local level). Tennessee has enacted marketplace nexus legislation set for October 1st, 2020, to change the numbers to 45 states.
In the recent MTC.gov meeting, an updated whitepaper was produced, making recommendations to state legislators and tax agencies considering such laws or amendments during their 2020 legislative sessions.
When does a Marketplace Seller (you) Get Audited for Marketplace Sales?
Here is the situation: If the marketplace facilitator/provider can show that the failure to collect was due to the marketplace seller (you) providing erroneous information to the marketplace facilitator/provider, then the audit risk and liability can shift to the marketplace seller for those transactions.
Erroneous information may be just inaccurate information. The wrong EIN, spelling errors, address issues…from your seller account.
What is involved in the Marketplace seller economic nexus threshold calculation?
Most states include both marketplace facilitator sales and direct sales toward threshold calculations, but 8 states only include direct sales. This is good news because most of your sales are on Amazon, not your own website or Shopify.
Other marketplace facilitator items clarified in this MTC whitepaper include:
- Definition of marketplace facilitator/provider. This is not an issue for companies such as Amazon, eBay, Walmart, but what about payment processors, advertisers, car rentals…? The types of companies are up in arms attempting to figure out if they need to collect sales tax on behalf of their customers or clients.
- Who is the retailer? This definition has changed over the last couple of years, and now the marketplace facilitator steps into the retailer’s shoes. Does this mean if you have the previous nexus, you may argue you were not the retailer, and you should not be liable for sales tax? It sounds good, but the big question becomes, will the state change how they handled the definitions of nexus 2-3 years ago from today? Probably not. Tax law, cases, and situations always evolve and change over time. And it will change again 2-3 years from now, especially sales tax.
- Collection responsibility determination. This would seem to point to the marketplace facilitator, but other issues come up, including who is responsible for collecting other state fees and taxes?
- Certification requirements. This is the reverse of what you may think. This is where the marketplace facilitator needs to provide documents to the marketplace seller in case of an audit. It allows the seller to point the finger to the facilitator for the audit.
- Information Sharing. This is in place, but will the states use the information against you if required?
Overall, it appears that most sales tax requirements are going in your favor as a marketplace seller. Just don’t assume that means you have zero responsibilities in any 45 states that collect and remit sales tax.
Did you have physical or economic nexus to marketplace nexus in several states? If so, you will have a potential sales tax liability. Learn how we can help you determine when you first had nexus and what states to register. A sales tax nexus analysis will help you determine when you first had nexus and much more. Learn more here.
Selling on your own website or Shopify (which is NOT a marketplace facilitator) will create more compliance as your sales and transactions increase. Does that mean you don’t sell on your own website or sites like Shopify? No. You have to track sales and data.