Sale Tax Basics for Marketplace Facilitators
What is a marketplace facilitator?
Defining “marketplace facilitator” can be tricky, because each state has its own definition of the term which can be very specific and unique. But generally speaking, a marketplace facilitator is a person or business who facilitates the sale of a marketplace seller's products through some marketplace platform. For example, a common marketplace facilitator is eBay. eBay is best known for bringing buyers and sellers together - working as the middleman to facilitate sales. eBay advertises, hosts monetary transactions, and provides customers with support as needed for its sellers. In most cases, this means eBay would be considered a marketplace facilitator. Other marketplace facilitators could include Amazon, Uber, DoorDash, and many more depending on how the term is defined in a state.
As mentioned, each state will have its own definition of a marketplace facilitator. For example, take a look at California’s definition:
A person, other than a delivery network company, is a marketplace facilitator if they contract with marketplace sellers to facilitate the sale of the marketplace sellers' product through a marketplace operated by the person or a related person for a fee or other consideration and perform certain activities (discussed below) directly or indirectly through related persons.
To be a marketplace facilitator, a person must do at least one of the following activities:
Transmit or otherwise communicate the offer or acceptance between the buyer and seller.
Own or operate the infrastructure, electronic or physical, or technology that brings the buyer and seller together.
Provide a virtual currency (digital money) that buyers are allowed or required to use to purchase products from sellers.
Software development or research and development activities related to any of the activities listed below if the activity is directly related to a marketplace operated by the person or related person.
In addition, to be a marketplace facilitator, a person must engage in at least one of the following activities with respect to the marketplace seller's products:
Payment processing services.
Fulfillment or storage services.
Listing products for sale.
Setting prices.
Branding sales as those of the marketplace facilitator.
Order taking.
Providing customer service or accepting or assisting with returns or exchanges.
Lengthy, right? Ok, now that you’ve determined you might be a marketplace facilitator, or maybe you are using one as a seller, what does this have to do with sales tax?
Why should marketplace facilitators care about sales tax?
Over the last few years, many states have enacted legislation that could require marketplace facilitators to collect and remit state taxes on behalf of their marketplace sellers. This can even be true for those marketplace facilitators who do not have a physical presence in the state, following the decision made about economic nexus in the landmark case, South Dakota v. Wayfair. But what is also important to note is that marketplace facilitators may or may not have the same economic nexus thresholds as regular remote sellers. This, as usual, will depend on the state. It is also important to note that many states will require marketplace facilitators to include both their marketplace sellers’ sales as well as their own in their threshold calculation, but some may not. Furthermore, what items should be included in the threshold calculation will also vary by state - some might say to only include sales of TPP, while others may say all sales should be included in the threshold calculation. In other words, it can be quite complex to determine if you’ve crossed a threshold and have a responsibility to collect and remit state taxes as a marketplace facilitator. We have a chart that breaks these thresholds down by state for your convenience. Click here to access it!
So why should marketplace sellers care about sales tax?
As a marketplace seller, it is true that your marketplace facilitator may be required to collect and remit sales tax for you in a state. So, should you just kick up your feet, relax, and let it all be handled for you? Well, unfortunately, it’s not that simple.
Several states will require marketplace sellers to do something related to their state taxes, even if they are not collecting and remitting the taxes themselves. For example, in Alaska, the legislation states that “If the remote seller is a marketplace seller and only makes sales in Alaska through a marketplace, the marketplace seller is not required to register with the Commission. The marketplace seller must submit an affidavit attesting to these facts on a form provided by the Commission.” On the other hand, in Connecticut, marketplace sellers are typically required to register with the DRS, depending on the location and business activity of the seller (more on that here).
As you can see, marketplace sellers aren’t completely off the hook. It’s important for all parties involved in this type of business to understand what their responsibilities are and how to handle them. For more information on the services we offer regarding these matters, contact us here.
By: Briana Wagner
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.