A marketplace facilitator is a business or organization that contracts with third parties to sell goods and services on its platform and facilitates retail sales of at least $250,000 during the prior 12-month period. It enables these sales by listing the products, taking the payments, collecting receipts, and in some cases assisting in shipment. When we refer to marketplace facilitator laws, we’re talking about legislation surrounding the sales tax responsibilities of these facilitators.
Recently, several states have created legislation that requires marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers’ transactions, including Alabama, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, and Washington. These laws benefit the states because they can collect more sales tax from fewer entities, which results in simpler compliance for the states. For sellers, the benefit lies in having sales tax for certain transactions handled by the facilitator. But in many cases, it’s not as simple as it may seem.
The Reasoning Behind These Laws
Marketplace facilitator laws grew from the idea that a state could collect all of the required sales tax from one entity rather than from hundreds of thousands of smaller companies. Let’s use Amazon as an example. Before these types of tax laws came into effect, each of the third-party sellers was responsible for collecting and remitting their own sales tax.
So if a third-party seller on Amazon didn’t have nexus (triggered by a physical location, employee staff, store inventory, or reach a certain amount or number of transactions) then it didn’t have to collect sales tax for sales in that state. And the state then missed that portion of revenue.
And even if a seller did have nexus there, if the seller chose not to follow the law, the state then spends significant time and resources to go after that seller, along with any other businesses that are non-compliant. That’s a lot of time and money to get their sales tax revenue.
By placing the onus of sales tax on the facilitator (rather than the seller), these laws enable the states to force compliance across the entire state, and it dramatically reduces the cost of compliance for the states to claim their revenue.
What Sellers Need to Know
For sellers, marketplace facilitator laws mean that your facilitator will handle collecting and remitting sales taxes on behalf of your sales in states where your marketplace is compliant.
Another concern for sellers is whether a seller should keep their sales tax permits current if they are dealing with a state that imposes marketplace facilitator laws. The general consensus is yes. Remember, a facilitator will only handle the sales tax on transactions sold through its platform.
So, if Amazon is collecting sales tax on your behalf in Washington, but you are located in Washington and you sell items through your business website, too, you still need to collect, remit, and file in the state on your own. To do that, you have to have current license or permit. And in most states, if you don’t do any sales outside of those with the facilitator, you’re required you to file a simple “zero return” saying so, or register for non-reporting sales tax status.
But, it’s imperative that you as the seller arm yourself with all of the relevant information about possible marketplace facilitator laws. Below we’ll share all of the information that we know on which states currently impose these laws and the facts you need to know to stay up-to-date.
How to file your return when marketplace tax is collected
If your state return includes sales to customers in states with Marketplace Facilitator laws, TaxJar’s Reports (and TaxJar’s AutoFile) will assume that your marketplace has remitted all collected taxes associated with such sales on your behalf and will adjust your returns accordingly. You can read more about how TaxJar handles this tax in our help center.
Every Marketplace Facilitator Law, by State
Important to note: This area of law is changing rapidly. While we strive to keep this post up-to-date, please use it as a guideline only and consult with a sales tax expert should you have specific questions as to how economic nexus applies to your business.
The Alabama law states that marketplace facilitators with marketplace sales over $250,000 must collect sales tax by or on behalf of its third-party sellers.
Additionally, remote sellers who exceed the economic nexus rule’s $250,000 small seller exception should register for the Alabama Simplified Sellers Use Tax Program (SSUT) and begin collecting no later than October 1, 2018.
State Effective Date: January 1, 2019
This law requires that marketplace facilitators in Connecticut must collect and remit sales tax on behalf of their marketplace sellers.
If you’re already registered as a retailer with the Department of Revenue Services, but you only make sales through marketplace facilitators who collect and remit sales tax on your behalf, then you can request to change your filing status to annual. Send a secure email via the online Taxpayer Service Center (TSC). But, before you change your filing frequency, you’ll need to wait until you receive written confirmation from the DRS of your change in filing status.
State Effective Date: December 1, 2018
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 Effective Date: January 1, 2019
This law requires that marketplace facilitators in Minnesota collect Minnesota sales tax on behalf of third-party sellers.
Keep in mind that third-party sellers who have other forms of sales tax nexus in Minnesota (a home office/business, physical location, employee, salesperson, etc.) would still be required to register for a Minnesota sales tax permit and collect sales tax.
State Effective Date: October 1, 2018
- Amazon (effective October 1, 2018)
- eBay (effective January 1, 2019)*
- Etsy (effective October 1, 2018)
- Walmart (effective October 2, 2018)
This law requires that marketplace facilitators in New Jersey collect New Jersey sales tax on behalf of third-party sellers. See the Remote Sellers notice for more information.
Sellers that have a physical presence in New Jersey, or who are otherwise legally obligated to collect and remit New Jersey Sales Tax, are unaffected by the new law.
State Effective Date: November 1, 2018
Marketplace facilitators in Oklahoma are now required to collect Oklahoma sales tax on behalf of third-party sellers or elect to comply with Oklahoma’s notice and report requirements.
The law also requires that remote sellers who make at least $10,000 in aggregate sales in Oklahoma in a 12-month period either collect sales tax or comply with notice and report requirements.
State Effective Date: Effective immediately
This law requires that marketplace facilitators in Pennsylvania either collect Pennsylvania sales tax on behalf of third-party sellers or elect to comply with Pennsylvania notice and report requirements.
State Effective Date: April 1, 2018
- Amazon (effective April 1, 2018)
- eBay (effective July 1, 2019)*
- Etsy (effective April 1, 2018)
- Walmart (effective February 1, 2019)
This law requires that marketplace facilitators in Washington collect Washington sales tax on behalf of third-party sellers. If a marketplace facilitator has economic nexus (B&O) with Washington, its commission income is subject to B&O tax under the Service and Other Activities classification for facilitated sales that are delivered or sourced to Washington.
- Amazon (effective January 1, 2018)
- eBay (effective January 1, 2019)*
- Etsy (effective January 1, 2018)
- Walmart (effective February 6, 2018)
*At this time, TaxJar Reports do not recognize eBay sales as Marketplace Exempt.
As the laws evolve and more states become affected by marketplace facilitator laws, we will update them here. Because these laws are subject to change, you should almost always consult with the state’s department of revenue or a trusted tax advisor before making major decisions about your business.
Do you have questions, have new marketplaces to add, or have something to say about marketplace facilitatory laws? Start the conversation in the comments!