Good news for marketplace sellers! The state of Arizona now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Amazon and Etsy.
This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Arizona buyers on your behalf, and remit it to the state.
But as usual, nothing is black and white when it comes to eCommerce sales tax.
This post will explain what online sellers need to know about the Arizona marketplace facilitator law, and answer your frequently asked questions.
Overview of the Arizona Marketplace Facilitator Law
Arizona’s marketplace facilitator law states that marketplace facilitators will be required to collect and remit Transaction Privilege Tax (TPT – Arizona’s version of sales tax) on taxable sales in Arizona made through their platform for at least one remote marketplace seller if gross sales for that marketplace facilitator exceed $100,000 annually.
Marketplace sales should be included in gross receipts and then deducted from the gross receipts to calculate the taxable sales. Remote sellers do not need to collect TPT on transactions when a marketplace facilitator is collecting and remitting TPT for them.
Quick Facts about the Arizona Marketplace Facilitator Law
- Effective date: October 1, 2019
- Threshold: Marketplace facilitators will be required to collect and remit Transaction Privilege Tax (TPT) on taxable sales in Arizona made through their platform for at least one remote marketplace seller if gross sales for that marketplace facilitator exceed $100,000 annually. Marketplace sales should be included in gross receipts and then deducted from the gross receipts to calculate the taxable sales.
- Remote sellers do not need to collect TPT on transactions when a marketplace facilitator is collecting and remitting TPT for them. Please note: As part of the legislation, municipal license fees are waived for both remote sellers and online marketplace facilitators.
- State law information: Read the full text of the Arizona Department of Revenue
- Marketplaces that have adopted this law:
Frequently asked Questions about Marketplace Facilitator Laws
What exactly is a marketplace facilitator in Arizona?
Online sales platforms like Amazon and eBay are considered marketplace facilitators under Arizona law.
A software like Shopify or Magento that allows online sellers to build and manage their own stores would not be considered a marketplace facilitator.
Does this mean I can stop collecting Arizona sales tax?
It depends. Every business’s sales tax situation is unique to that business.
Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Arizona.
Example #1: You only make sales on online marketplaces.
In this example, you only sell on Amazon and Etsy. Because Amazon and Etsy are both now collecting sales tax from buyers on your behalf, you are not required to collect sales tax from your buyers. (However, you may still be required to file periodic sales tax returns. See “Does this mean I can cancel my Arizona sales tax permit?” below.)
Example #2: You sell on online marketplaces and your own online store and/or brick and mortar store.
In this case, you’d still be required to collect sales tax from buyers who purchase from you through your own online store (for example, via your BigCommerce or Shopify store). And you would still be required to collect sales tax from your brick and mortar customers.
Marketplace facilitator laws only cover marketplaces. The state still requires that merchants collect sales tax from buyers via sales channels where the marketplace facilitator laws do not apply.
Does this mean I can cancel my Arizona sales tax permit?
Yes. If your only sales in the state are marketplace sales, the Arizona Department of Revenue states that you will not be required to be licensed or report, so long as you have an exemption certificate(s) or other proper documentation indicating that the marketplace facilitator will file TPT on behalf of the marketplace seller.
However, if you are a marketplace seller who has already registered due to physical presence, you have voluntarily registered or you have economic nexus, you should remain registered, according to the DOR.
But first, a word of caution. We recommend checking directly with the state or a sales tax expert before cancelling your sales tax registration. This is because your business is now on the state of Arizona’s books and potentially on their radar should they decide that you still have sales tax obligations in the state of Arizona.
Final note: It’s important to assess your business before making a decision about cancelling sales tax permits. Are you in a growth stage? Do you plan to expand and think you may have Arizona sales tax collection requirements in the future? Then you may want to hang on to your Arizona sales tax permit rather than cancelling it and going through the administrative hassle of registering again in the future. This business decision is up to you.
Do I still need to file an Arizona sales tax return?
If you are registered to collect sales tax in Arizona (i.e. you have an active Arizona sales tax permit) then the state still requires that you file sales tax returns.
If you only make sales via marketplaces, and all of your marketplaces collect sales tax from buyers on your behalf, then you may only be required to file a “zero return.” (This is a return showing that you do not have any sales tax to remit to the state.)
If you’ve previously registered, the state expects you to remain registered and continue to file returns including zero returns.
Be cautious here. If you are registered for a sales tax permit and do not file, the state can assess penalties even though you don’t have any sales tax to remit! We have, unfortunately, talked to too many sellers who have found this out the hard way when a tax penalty bill arrives.
What do I do with any Arizona sales tax I have already collected?
If you have already collected Arizona sales tax from buyers, it is vital that you remit that amount to the state. The only way to get in serious criminal trouble in sales tax is to collect sales tax from buyers on the state’s behalf but keep it in your own pocket.
Let’s say you sell on Amazon and Arizona requires you to file and remit sales tax quarterly. Though Amazon began collecting sales tax on your behalf on October 1, 2019, if you have any sales tax in your bank account that you collected from Q2 2019, you will still need to remit that to Arizona’s Department of Revenue or face a penalty.
Does TaxJar handle this for me?
TaxJar AutoFile handles Arizona sales tax automatically
TaxJar AutoFile automatically compiles your sales tax data the way the state of Arizona wants it filed. For example, many states, Arizona included, want sellers to break down their sales tax collected interstate (sales originating in Arizona sent to another state) and intrastate (sales made from Arizona to Arizona.)
If a marketplace has collected sales tax on your behalf, TaxJar reports that directly to the state so that the state is aware you have met your sales tax obligations.
If you currently AutoFile your Arizona sales tax returns, you don’t need to do a thing. It’s handled!
TaxJar Reports give you all the info you need to file manually
If you prefer to file manually, your TaxJar Reports also reflect what the Arizona Department of Revenue wants to see on your tax return.
Also don’t worry that you will double pay. TaxJar accounts for sales tax collected on your behalf, and only shows you the amount you owe to the state out of your pocket.
Further reading on Arizona sales tax and marketplace facilitator laws:
- TaxJar’s Marketplace Facilitator FAQ
- State by State: Marketplace Facilitator Laws Explained
- Arizona Sales Tax Guide for Businesses
Do you have questions or something to say about the Arizona marketplace facilitator law? Start the conversation in the comments!