If you are a seller that utilizes an online marketplace facilitators like eBay, Amazon, or Etsy you may find yourself wondering where your sales tax responsibility lies. As you may often find in the sales tax world, the initial answer to most questions is, ‘it depends.’ Let’s dive into some questions regarding marketplace facilitator platforms and the online sellers' sales tax responsibility to provide some much-needed clarity for you and the well-being of your business.
A couple of preliminary questions that we discuss a lot throughout our podcasts and website are the top three questions that every business owner needs to ask themselves as they enter the world of sales tax compliance.
The past few years have presented an ever-changing landscape in terms of sales tax laws. These changes have affected online sellers all across the board. The U.S Supreme Court made its decision in the South Dakota v. Wayfair case that drastically altered the playing field for online sellers. Up until that point, most eCommerce businesses with sales tax nexus were expected to collect and remit sales tax from buyers whether they sold on their own website or utilized an online marketplace. However, now all states have marketplace facilitator laws in place.
What is a marketplace facilitator law? It is a law that requires any given online marketplace facilitator platform to collect and remit sales tax for the online sellers who use their platform to make sales.
While that sounds simple enough, there is always complexity in the sales tax world which all online marketplace sellers will undoubtedly run into at one point. The complexity comes into play as we look at each state and its definitions of marketplace facilitator laws. States with marketplace facilitator legislation approach this issue in various ways.
For example, there are many states that will not require marketplace sellers who sell exclusively online utilizing a marketplace platform to register with the state or file returns regardless of whether they’ve reached the economic nexus threshold.
Then, on the other hand, there are other states that want online sellers to register and the state may also provide specific instructions when it comes to registering and remitting sales tax.
The diversity in the state's definition and expectations for online sellers and their obligation to sales tax changes constantly. This leads to a few questions that we often hear.
Asking yourself if you should be registered and how your sales tax gets submitted are important to know. Platforms are responsible to collect and remit the sales tax accrued from sales on their site. So you may wonder, if it is their responsibility and I’m not registered, under what scenario should I get registered?
Ultimately, it boils down to how you're making your sales. If you sell solely through marketplace facilitators then we oftentimes will not register a company. However, there are pros and cons involved with being registered. If you are looking at growing or expanding your sales through another medium you may want to register to allow for this growth. There’s a lot to consider when it comes to your specific situation; collaborating with a sales tax professional can provide clarity and peace of mind.
This is another question we get from those on the flip side of the coin. You may have registered because at some point before the change of legislation you had a level of sales tax responsibility. But, you may have found that your responsibility started diminishing over time as each state passed the marketplace facilitators legislation - which made the marketplace facilitators the responsible party to collect and remit that sales tax. So the question these sellers present to us is: Should I deregister?
We recommend being very cautious when taking this approach. If you sell on multiple platforms or channels you will want to be especially careful that you don’t deregister everywhere due to probable remaining sales tax responsibility. And yet, in the same breath, we know that being a registered taxpayer brings costs, administrative hassles, dealing with notices, etc. We prudently say that it may come down to your business’s materiality and what the risk factor may be in your particular circumstance. Maybe deregistering is right for you but that doesn't mean it's the right move for everyone.
Both of these questions are valid and very important to answer. As you have probably come to find, there is not a one-size-fits-all answer.
At the end of the day, it all comes down to becoming educated on your own personal requirements, as everyone’s circumstances and state legislation differ. There is a lot of information to sift through and consider. And while it may feel like you know what you need to do and you assume you can navigate it all on your own, collaboration with a professional will save you time and money in the long run. You cannot predict the pitfalls you will come across if you choose to face this on your own, traveling the long road to sales tax compliance. Allow us to throw you a rope, or better yet, let us help you find the correct detour to avoid all costly sales tax pitfalls completely. Don’t let sales tax hold you and your business back from reaching your full potential. Hop on to our completely free “What’s Next Call” where we can provide guidance, a second opinion if that's what you're needing, or answers to any other questions regarding sales tax and your online business. Let’s collaborate.