The marketplace facilitator tax typically refers to the sales tax responsibilities of businesses that allow others to use their platforms to sell $250,000 or more in a 12-month period.
There have been plenty of recent changes to marketplace facilitator laws. That's led to organizations registered in 20+ states wondering if they can deregister in the states where marketplace facilitator rules are in place.
The answer is, as with all things in taxation, – It depends! It varies in each state.
In today's E-COM Sales Tax Podcast, our team of SALT experts discusses the real-world implications of marketplace facilitator laws. Does Amazon collect sales tax for sellers? Do you have to charge sales tax on eBay? We're here to help.
Questions this episode answers:
- Does Amazon collect sales tax for sellers?
- Do you have to charge sales tax on eBay?
- What is the situation on the state of Washington with deregistering?
- What is the BNO tax which is reported on the same combined excise tax return along with the sales tax?
- What is the general excise tax on the state of Hawaii?
- In 2020 Amazon will begin collecting and remitting on behalf of its sellers. But if you are buying for resale, will you get a full exemption?
- Do I need or should I deregister in these states, if I am already registered? Do I need to remain registered and still file or not file? Have states given clear guidance on this? Is there a cost to deregister?
- Should I deregister in states which are going to have additional tax beyond the transactional tax that Amazon may be collecting?
- In case I have not registered yet, should I do that?
- What is the scenario for individuals who also sell on other marketplace facilitators platforms? Should they deregister if they sell on Amazon?
- If I am selling on multiple platforms, then can I deregister at least on the states in which Amazon has inventory?
- Once I have nexus, do I have nexus for every state and have to collect and remit the sales tax?
- Most of these state laws require them to notify me when they began to collect and remit taxes, so if I have not been notified or they do not state that they are doing it, do I have to assume that they are collecting on my behalf?
Marketplace Facilitator Tax Explained
I've been getting this a lot, just from the recent changes about the marketplace facilitator laws. This person sells exclusively on Amazon and they are registered in 20-plus states and they're wondering if they can de-register in the states where they have marketplace facilitator laws?
Dan Peisner, CMI, Senior Accountant, Peisner Johnson
That's an excellent question Ryan, and that is something that we're seeing come up quite often. Because when it comes to sales tax compliance it is a little bit of a burden. Either you're outsourcing it and there's a monetary component or you do it yourself and there's a time component to it. So a lot of our clients do ask -- can I de-register? And the answer as with all things in taxation is "it depends."
At the very least, in the state of Washington, you absolutely cannot because in addition to the sales tax, there is also the business and occupation or B&O tax, and you report both on the same combined excise tax return I should say. And while the sales tax might be collected and remitted on your behalf by Amazon, the B&O comes out of your pocket, it's not collected from your customers and you have to report it. So if you de-register, then you're going to have exposure in the form of the B&O. So that is something that at the very least you have to stay registered for and continue to report on.
Then on the state of Hawaii, everybody's favorite Aloha state, when that goes live in 2020 where Amazon will begin collecting and remitting on behalf of its sellers, Hawaii has a little bit of a different structure. It's not a true sales tax, it's called the general excise tax. It's imposed on the seller. And the way that the state has kind of put this together is that Amazon will be considered the retailer and will bear the full rate. However, if you're buying for resale in the state of Hawaii, you don't get a full exemption you get instead the half percent wholesalers rate and they say that the marketplace sellers are still going to be responsible for that. So you will still have something of a burden for reporting where you'll have to report the half a percent wholesale tax. Now whether you can bill that back to Amazon and what those terms are going to look like, we're not quite sure yet. But still a ways off and we're going to have to see what Amazon's policy is on that.
Jason Parr, Partner & COO, Peisner Johnson
Hey, Parr here, just wanted to jump in and summarize Dan's answer. So I guess what you're saying Dan, is in some states you would say "maybe" and in some states you would say "maybe."
I think of this situation in two different scenarios. Now the question is -- if I'm already registered in these states, do I need to de-register, or can I de-register? And there have been a few states who have given guidance, direct guidance on whether you should or can de-register. Some states would require you to remain registered and still file. Some states might require you to remain registered but not require you to file. But there's been very few states who have given guidance on this.
So if you're already registered and remitting returns, our approach would be to look at the cost to de-register, because there is a cost to it. So I would be careful there and we might say remain registered until you receive further guidance. There are some states that are going to have an additional tax beyond the transactional tax that Amazon may be collecting. In those states we would encourage you to remain registered because you have another tax obligation in those states.
The other side of this coin would be if you're in a situation where you're considering registering, you haven't registered yet, and the question is should I register? That's a little bit of a different question because you may not have on a go-forward basis exposure in that state, and so we might recommend not registering. But we would definitely encourage you to chat with us and just walk through a free consultation to be able to understand what your footprint is, and state by state look at your scenario to give you the best advice possible.
Remember, we're always trying to avoid a situation where you're paying tax out of your own pocket with penalties and interest when there's a chance that you could have been registered properly in collecting that tax from a willing party. So always something we avoid there.
Dan, this brings up another question. Now, that's a question from someone who sells only on Amazon. What we find as we talk to different individuals every single day is it's somewhat rare that someone only sells on Amazon. We find that individuals sell on their own website and they're on different platforms, they sell through other channels, they also sell on other marketplace facilitator's platforms. What's the scenario for someone like that when it comes to, should I de-registered if I a sell on Amazon?
Well, if they're selling on multiple platforms at least on the states in which Amazon has inventory, they can't de-register. Amazon inventory gives you Nexus and once you have Nexus, you have Nexus for every platform. There is no -- well I've got Nexus with Amazon, but Shopify is a completely different system. That was settled in a California case a long time ago. Once you've got Nexus, you've got it for the entire business and you need to collect and remit the sales tax. So you'll be reporting your other channel sales and then in many cases, you'll report the Amazon sales as well, but you'll take a credit for the tax that's collected, or in other cases, you just show it as you show the Amazon sales as exempt or resale. Each state has a little bit of a different secret sauce for this and you kind of have to look at what the state prescribes.
One word of caution also, not all marketplace facilitators are collecting on your behalf. Most of these state laws require them to notify you when they begin to do it. So if you have not been notified or they do not state that they're doing it, be very careful before you assume that they're picking up the burden on your behalf.
Yeah. Well, you bring up something very interesting there, because you can always make a claim if you're selling on a marketplace facilitator platform and there is a marketplace facilitator law indicating that they're the responsible party. You obviously could say, hey, they're the responsible party, so I'm just not going to worry about it.
But you're right to say that every marketplace facilitator is different. Not all of them adopt as quickly and as aptly as Amazon might as soon as facilitator law comes into place. And because of that, it's difficult to sometimes... I'll say it's not difficult, but it makes it more complex to navigate your responsibility on the collection side and the remittance side.
I'll just give you one word of caution. When you're working with an automated sales tax service provider on the return side or you're working in an automated system, just know that because of the landscape changing so quickly, as more states come on with legislation that requires marketplace facilitators to collect and remit the tax, that the automated systems don't always stay up to date. And because marketplace facilitators adopt at different times and in different methods, you may not capture that.
So our fear, our concern would be that you're in a situation where you're in a marketplace facilitator state, you're on a marketplace facilitator platform, that facilitator collects and remits the tax properly in that state and your automated front end system or return system calculates tax that would be due had the facilitator not been collecting and remitting, and that amount gets calculated collected from you and remitted to the state through that automated process -- essentially pulling the tax dollars out of your pocket and paying them twice. Obviously there would be a remedy to get those taxes back, but that could be a big hit in an automated situation.
So it's important to have someone that can walk through the process with you, navigate the different reports and data feeds that go into preparing a return when, let's say you're on Amazon, you're also on eBay, you're also on Walmart, you also have sales on your own website through Shopify, maybe have a NetSuite front end or Magento, you have all of these different platforms and you have different connectors and you have different front end systems calculating the taxes that are due, looking at all those reports and ensuring that those reports are not requiring amounts from you that have already been collected and remitted by a facilitator. I just want to put that out there as something to think about and to be concerned about.
Again, we always ask you if you have questions, if you have concerns, if you're not sure what your situation is when it comes to how much you're remitting and what you remitting on, we just ask you to give us a call and chat with us and we can walk through how to navigate that.
Dan, did I leave anything out in that thought process?
No, I think that's pretty well covered and covers something that I always try to advise a lot of our staff about, is whenever you're doing anything that involves the numbers, always do a sanity check at the end -- look at the number and make sure it makes sense. And that goes right into what you were saying about sometimes these systems don't line up or mesh perfectly or some feed is getting misplaced and especially when you get rapid pace and the evolution of the market like we're seeing now. So you always want to do a sanity check on those numbers and make sure they're right and either you can do that yourself or have somebody such as us come in and do it for you.
Hey, I love that. So we have a registered service mark, which is the same thing as a trademark, except it's related to a statement or a tagline that we have, we call it, "state taxes handled" meaning, we want to take care of that for you, we want to manage state taxes so that you don't have to, so that you have some peace of mind. But maybe the consultations that we perform, we'll register a new service mark and that'll be called a sanity check. Because I have to tell you, talking to people on a daily basis, this really is driving them to insanity, trying to figure this out, trying to navigate it in a way that they can do it in a beneficial way, but more so economically -- can they manage compliance and navigating the marketplace in a way that doesn't put them out of business? So, yeah, I liked that, Dan. Sanity checks offered by Peisner and Johnson.
Alright. Thank you Dan and Jason. This concludes another episode of the E-COM Sales Tax podcast. If you guys have any other questions about the information learned from today's podcast, you can find my contact information down below, especially if you need someone just to talk to you about your particular situation. Find us on Facebook and reach out to us on our website salestaxforonlinesellers.com and we'll see you guys next week