It has now been more than two years since Wayfair v. South Dakota changed the game when it comes to US sales tax. States were suddenly handed broad new taxing authority, and at times had to scramble to create sales tax laws, regulations and processes to take advantage of this new power while remaining fair to taxpayers.
California has always been one of the more “on the ball” states when it comes to sales tax, and their marketplace facilitator sales tax relief laws are no exception.
Marketplace Facilitator Sales Tax Laws, Explained
Before we get into California specifically, it’s important to recap how marketplace facilitator laws work.
Before Wayfair, third-party sellers who sold on big online marketplaces like Amazon, Walmart, and eBay were required to collect sales tax from buyers and remit that sales tax to the state themselves. These online marketplaces are known as “marketplace facilitators.”
After Wayfair, states now have the power to require marketplace facilitators to collect and remit sale tax on behalf of third-party sellers (known as “marketplace sellers.”) States count this as a big win because, rather than receiving smaller amounts of sales tax from thousands of third- party sellers, they now receive big lump sums of sales tax from marketplace facilitators.
However, the transition for marketplace facilitators was not always smooth. They had to go from providing marketplace sellers with a way to collect their own sales tax to collecting sales tax on their sellers’ behalf. And that’s where California’s marketplace facilitator sales tax relief comes in.
(Need more of a refresher? You can read a lot more about marketplace facilitator laws here.)
California Marketplace Facilitator Relief
California passed two laws designed to help marketplace facilitators (remember, these are big marketplaces like Amazon, eBay, etc.) when it comes to collecting sales tax on behalf of buyers.
- California Revenue and Taxation 6046 – This law assists marketplace facilitators who have been unable to obtain necessary information from marketplace sellers and thus can’t collect the proper amount of sales tax on the seller’s behalf.
- California Revenue and Taxation 6047 – Provides partial tax relief to a marketplace facilitator who is unaware of their obligation to collect sales tax on behalf of 3rd party sellers.
In other words, these two laws are designed so as not to totally penalize marketplace facilitators who were either unaware of the law or unable to follow the law due to no fault of their own.
We highly recommend this article from Miles Consulting Group for more information regarding California sales tax relief for marketplace facilitators.
What does CA Marketplace Facilitator Relief mean for Marketplace Sellers
California has provided relief for marketplace facilitators. But what does that mean for the actual businesses who sell on marketplaces as third- party sellers?
It means always respond to communications from any online marketplaces on which you sell!
According to California law, if a marketplace seller does not provide the marketplace facilitator with the information they need in order to collect sales tax on that marketplace seller’s behalf, the sales tax collection obligation reverts to the marketplace seller.
For example, say you are a third- party seller and sell your goods on an online marketplace. Chances are, as state marketplace facilitator laws went into effect, the marketplace (or marketplaces) you sell on requires that you provide some additional information so that they could collect the correct amount of sales tax on your behalf. Under California law, if the marketplace can prove that they, in good faith, tried unsuccessfully to reach you, then they can prove that they are no longer under the obligation to collect sales tax on your behalf.
And if this happens, that means that you are now responsible for sales tax collection from your buyers on that 3rd party marketplace.
That’s why it’s vital to ensure you open and respond to urgent communications from any 3rd party marketplaces on which you sell.
What does this mean in other states?
The laws we’re talking about today are California-specific. Other states might not revert sales tax collection obligation to third- party sellers should that third-party seller fail to provide updated tax information to the marketplace facilitator. Still other states may simply have not run into this issue yet.
While two and a half years might seem like a fairly long time to you and me, laws move slowly, and sometimes the original iteration of a law conflicts with how the real world actually works. For now, California, at least, is attempting to work with marketplace facilitators when it comes to collecting sales tax. We’ll keep you updated here on the TaxJar blog if other states follow suit, or if any new information for marketplace sellers comes to light.
Ready to automate sales tax? To learn more about TaxJar and get started, visit TaxJar.com/how-it-works.