Good news for marketplace sellers! The state of Iowa now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Amazon and Walmart.
This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Iowa buyers on your behalf, and remit it to the state.
But as usual, there are always a few questions when it comes to eCommerce sales tax.
This post will explain what online sellers need to know about the Iowa marketplace facilitator law, and answer your frequently asked questions.
Overview of the Iowa Marketplace Facilitator Law
Iowa’s marketplace facilitator law states that marketplace facilitators who generate $100,000 or more in sales, or generate sales in 200 or more separate transactions, must get an Iowa retail sales tax permit and file sales tax returns.
The law also requires many sellers with a retailer’s use tax permit to get a sales tax permit instead.
Quick Facts about the Iowa Marketplace Facilitator Law
- Effective date: January 1, 2019
- Threshold: This law says that marketplace facilitators who generate $100,000 or more in sales, or generate sales in 200 or more separate transactions, must get an Iowa retail sales tax permit and file sales tax returns. The law also requires many sellers with a retailer’s use tax permit to get a sales tax permit instead.
- State law information: Read the full text of Iowa’s Market Facilitator Law
- Marketplaces that have adopted this law:
Frequently asked Questions about Marketplace Facilitator Laws
What exactly is a marketplace facilitator in Iowa?
Iowa law defines marketplace facilitators as a businesses that facilitate retail sales by:
- Providing infrastructure (i.e. listing the product on the marketplace, communicating offer or acceptance of a retail sale, providing the physical or electronic marketplace, etc.) or support (i.e. customer service, fulfillment or storage services, etc.) for retail sales to occur; and
- Collecting the sales price, processing payments, or receiving compensation from the retail sale.
Online sales platforms like Amazon and eBay are considered marketplace facilitators under Iowa law.
Does this mean I can stop collecting Iowa sales tax?
Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Iowa.
Example #1: You are a seller that makes Iowa sales through a marketplace that does NOT collect Iowa sales tax.
If a marketplace facilitator did not meet the small remote seller exception threshold in calendar year 2018 (and is therefore not required to collect Iowa sales tax beginning January 1, 2019), and the marketplace seller exceeded the thresholds in calendar year 2018, the marketplace seller must collect Iowa sales tax and applicable local option sales tax on retail sales made on the marketplace. Marketplace sellers should contact the marketplaces on which they make sales to determine when the marketplace will begin collecting Iowa sales tax and applicable local option sales tax.
Example #2: You are a retailer with a physical presence in Iowa.
A retailer with a physical presence in Iowa that makes marketplace and non-marketplace (i.e. the seller’s own store, website, or catalog) Iowa sales must collect Iowa sales tax and applicable local option sales tax on non-marketplace sales regardless of the seller’s gross revenue or the number of sales transactions made.
Does this mean I can cancel my Iowa sales tax permit?
If a marketplace seller only makes retail sales in Iowa through a marketplace and the marketplace facilitator collects Iowa sales tax and applicable local option sales tax, the marketplace seller does not need to obtain an Iowa sales tax permit if not already registered.
However, Iowa has not made a clear ruling on whether sellers who are already registered and who only sell on marketplaces are allowed to cancel their registration.
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 Iowa’s books and potentially on their radar should they decide that you still have sales tax obligations in the state of Iowa.
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 Iowa sales tax collection requirements in the future? Then you may want to hang on to your Iowa 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 Iowa sales tax return?
If a marketplace seller only makes retail sales in Iowa through a marketplace and the marketplace facilitator collects Iowa sales tax and applicable local option sales tax, the marketplace seller does not need to file Iowa sales tax returns. Iowa sales tax will be reported and paid on a sales tax return filed by the marketplace facilitator.
If you no longer have any sales tax to remit to the state of Iowa, we recommend checking directly with the state to determine if you can cancel your sales tax registration.
What do I do with any Iowa sales tax I have already collected?
If you have already collected Iowa 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 Iowa requires you to file and remit sales tax quarterly. Though Amazon began collecting sales tax on your behalf on January 1, 2020 if you have any sales tax in your bank account that you collected from Q4 2019, you will still need to remit that to the Iowa Department of Revenue or face a penalty.
Does TaxJar handle this for me?
TaxJar AutoFile handles Iowa sales tax automatically
TaxJar AutoFile automatically compiles your sales tax data the way the state of Iowa wants it filed. For example, many states, Iowa included, want sellers to break down their sales tax collected interstate (sales originating in Iowa sent to another state) and intrastate (sales made from Iowa to Iowa.)
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 Iowa 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 Iowa 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 Iowa sales tax and marketplace facilitator laws:
- TaxJar’s Marketplace Facilitator FAQ
- State by State: Marketplace Facilitator Laws Explained
- Iowa Sales Tax Guide for Businesses
Do you have questions or something to say about the Iowa marketplace facilitator law? Start the conversation in the comments!