Since the creation of economic nexus in 2018, states have been trying to answer one, crucial question: “Are marketplace facilitators or marketplace sellers responsible for sales tax on marketplace transactions?”
It’s taken a few years, but the vast majority of states have agreed that marketplace facilitators, like Amazon and Walmart, should be responsible for the burden of collecting and remitting sales tax.
This month, Louisiana and Mississippi joined this growing consensus by passing their own marketplace facilitator laws. And there are only a handful left that have yet to get on board. If you’re an ecommerce seller that does business through marketplace facilitators, it’s important understand these new laws and what they mean for the future of marketplace legislation.
Louisiana’s legislation stipulates a marketplace threshold of $100,000 in gross sales or more than 200 sales in Louisiana in the current and prior year. Any platforms exceeding these numbers are considered marketplace facilitators, and need to collect and remit sales tax for all transactions in Louisiana.
Fortunately, there aren’t any unique rules or exceptions that stand out.
What is worth noting is that at $100k, the marketplace facilitator threshold is fairly low, compared to other states. This could lead to some ecommerce platforms not traditionally considered under the marketplace facilitator umbrella to meet this definition.
Mississippi’s legislation enacts a marketplace threshold of $250,000 in sales of tangible personal property or taxable sales in Mississippi.
During its review in the State Senate, there were some amendments that make the law unique from the those in other states.
First, it added an exemption for third-party food delivery. This means food delivery platforms such as Uber Eats and GrubHub aren’t responsible for sales tax on restaurant sales through their platform.
Second, the bill adds an election for marketplace sellers with more than $1 billion in national revenue (including sales of affiliates and franchised entities) to directly collect sales and use tax.
There are some gray areas that haven’t been clarified by the bill. For example, the bill doesn’t specify whether marketplace sellers that sell only through registered marketplaces have to register with the tax department. This omission is significant, because now marketplace sellers have no way of knowing whether they should register or not.
If you’re a marketplace seller in Louisiana or Mississippi, you’re probably wondering if these new marketplace facilitator laws will enable you to cancel your sales tax accounts. The answer for your business depends on a number of factors.
A good general rule is that if a state has a marketplace facilitator law, and if you’re a marketplace seller with no other sales activity in the state, you can cancel your sales tax permit there. However, there are some complications.
While the vast majority of states agree that marketplace facilitators should be responsible for sales tax, there’s no clear consensus on whether marketplace sellers still need to register with tax departments. Some states, like New York, require all marketplace sellers to register, even if they make no direct sales in the state. In other states, such as Minnesota, marketplace sellers don’t have to register if they only sell through collecting marketplaces.
Like all things sales tax, it really comes down to a case by case basis. Unfortunately, some states don’t clarify what they’d like you to do.
As of right now, Louisiana and Mississippi haven’t clarified their stance on this issue. We usually recommend anyone intending to cancel their accounts check with the state first.
In the coming months it will be interesting to see if these states clarify this point of confusion. Until then, the best way to decide whether to register or not is to get guidance from sales tax experts.
At face value, there’s nothing particularly unique about these two new marketplace laws. The thresholds are normal, and the way they legally define marketplace facilitators is similar to other states. However, if you look at the big picture, the impact is significant.
A few months ago, only five states imposing a general sales tax did not have marketplace facilitator laws in place. Those states were Louisiana, Mississippi, Florida, Kansas and Missouri. Now, in the span of only a few weeks, three are left.
With marketplace facilitator laws passed in 43 states, these holdouts are a clear minority. Looking at the big picture, we expect Florida, Kansas and Missouri to follow in the near future. This is because passing marketplace facilitator laws are in the state’s best interest.
First, passing legislation would eliminate the confusion that occurs when the state imposes economic nexus but doesn’t pass facilitator laws to clarify who is responsible for sales tax in an online marketplace.
Second, passing marketplace facilitator legislation would allow them to capture more sales tax revenue.
Because of these two very clear benefits to the three remaining states, we think it’s inevitable that they’ll pass marketplace facilitator laws. If you sell through marketplace facilitators in these three remaining states, it’s worth looking ahead to consider how new marketplace facilitator laws would impact your business.
The growing number of marketplace facilitator laws is having a significant impact on marketplace sellers. By taking a careful look at your business and new state regulations, you might be able to close some of your accounts and stop worrying about sales tax in those states.
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