As more states enact marketplace facilitator laws, ecommerce sellers are all asking the same question: should I cancel my state sales tax accounts? The answer for your business depends on a number of factors, which we’ll break down in this post.
Marketplace facilitator laws require marketplace facilitators to collect and remit sales tax for the sales of marketplace sellers on their platform. Put simply, if you sell goods through marketplace facilitators like Amazon, Walmart and eBay, they are responsible for sales tax on your transactions.
In some cases, this can reduce or eliminate your overall sales tax liability, enabling you to cancel your sales tax accounts.
But before you start canceling, you should conduct thorough due diligence to ensure you make the best decision for your business. Canceling an account in a state where you shouldn’t could leave you with significant liability.
Here are three questions to determine if you can cancel your account in each state.
Which States Have Marketplace Facilitator Laws?
Before you can use marketplace facilitator laws to to cancel your sales tax accounts, you’ll need to know which states have this legislation.
About 80% of states have facilitator laws in place. So, it’s actually easier to list the states that don’t have them yet.
As of June 2020, the following states don’t have facilitator laws:
(Alaska, Delaware, New Hampshire and Oregon don’t have facilitator laws because they don’t have sales tax.)
If you sell through marketplace facilitators in the states listed above, you are still responsible for sales tax on your transactions there.
If you sell through marketplace facilitators in any other states, you aren’t responsible for sales tax on those transactions. Depending on a few factors, you may be able to cancel your sales tax account.
(For a complete list of all states with marketplace facilitator laws and their respective documentation, check out Amazon’s guide to marketplace tax collection.)
When Should I Cancel My Sales Tax Accounts?
There are a few reasons you might cancel your sales tax account in a state:
- The business closes
- The business no longer has sales tax nexus there
- A marketplace facilitator law enables you to do so
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.
But there are a few exceptions. If you meet any of the following criteria in a given state, you probably cannot cancel your sales tax accounts:
- You have a physical presence in the state. (Sometimes marketplace sellers develop physical nexus through inventory storage.)
- You have non-marketplace sales that exceed the economic nexus threshold in that state.
- The state requires marketplace sellers to maintain their accounts even if the facilitator is collecting tax for them. These laws change frequently, so be sure to check with the state if you intend to cancel the account.
Take a close look at your operations to see if there are any states where you meet these criteria. If you do, you might have the opportunity to cancel your sales tax account.
How Do I Cancel My State Sales Tax Accounts?
Just like sales tax regulations, the method for canceling your account depends on the state. Common methods include over the phone, online or through the mail. If you’re unsure how to proceed, check with your CPA or a state sales tax consultant.
The growing number of marketplace facilitator laws has enabled many ecommerce sellers to cancel their state sales tax accounts. By taking a careful look at your business and state regulations, you might be able to close some of your accounts and stop worrying about sales tax in those states.
If you’re considering canceling your state sales tax accounts, here are a few steps you can follow: