Sales and use tax: Efforts to simplify marketplace rules

by | Oct 15, 2019 | State and Local, Tax News | 0 comments

By Judy Vorndran

Wayfair allows states to pursue remote sellers for sales tax collections using economic nexus thresholds to trigger sales tax duties. The U.S. Supreme Court “Wayfair” decision in 2018 and technology have made it easier to enforce remittance duties on smaller sellers that use these facilitators through marketplace facilitator laws.

Determining Duty

Although definitions vary, a marketplace is an online e-commerce site offering goods and services from multiple sellers. Those that facilitate sales on a marketplace by listing or advertising goods on behalf of sellers are known as marketplace providers. In all, 36 states and the District of Columbia (listed below, along with the statutes) have marketplace facilitator collection laws and rules as of October 2019.

Additional local sales and use taxes further complicate marketplace facilitator requirements. “Home rule states that have locally administered sales and use taxes layer on sales tax complexity. Blended rates and sourcing rules further complicate interstate and intrastate sales and clarity around which rates apply.

Simplifying Marketplace Rules

The Multistate Tax Commission (MTC) Uniformity Committee is working to finalize guidance to state legislatures and tax agencies on 13 issues that, if adopted by state legislatures, could provide greater uniformity and clarity in marketplace rules. These areas include:

  • More uniform definitions, excluding certain industries
  • Recommendations that a marketplace facilitator should be required to register, collect and remit sales and use tax on facilitated sales
  • Marketplace facilitators should have audit exposure
  • Economic nexus thresholds can be met by either the facilitator or seller
  • Marketplace facilitators should maintain exemption certificates when they have a sales and use tax duty from purchasers claiming exemptions for sales
  • Marketplace legislation provisions that relieve the facilitator from liability when duty decisions based on false information provided by the marketplace seller and protection from class action lawsuits

In addition, the NCSL is drafting model statutory language promoting a uniform definition of a marketplace facilitator.

Streamlined Sales Tax Program

In another program, Streamlined Sales Tax (SST) is an effort by state and local governments to simplify sales tax compliance for qualifying businesses. Participation in SST is voluntary for both businesses and states.

Member states of the SST program help cover the cost of registration, sales tax calculations, returns preparation, and state filing and remittance for businesses. Participating states as of September 2019 include: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania,* Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. Pennsylvania runs independently of SST through a similar state-run program (Avalara).

Avalara provides updates on the status of Streamlined Sales Tax.

Marketplace Facilitator Statutes

As of October 2019, 36 states and the District of Columbia had statutes imposing collection duties on marketplace facilitators (MTC Wayfair Project Reference Information):

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Judy Vorndran can be reached at jvorndran@taxops.com.

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