In the ever-evolving landscape of e-commerce, significant changes are taking place for sellers utilizing marketplace facilitators like Amazon. These platforms have taken on the responsibility of collecting and remitting sales tax in more than 47 states, including the District of Columbia and even Alaska at the local level. Notably, Missouri is poised to join this group by implementing marketplace nexus regulations starting from January 2023.
A recent gathering hosted by MTC.gov yielded an updated whitepaper that provides crucial insights. This whitepaper offers recommendations targeted at state legislators and tax agencies, especially those considering the adoption of similar laws or amendments during their legislative sessions in 2020.
When Does a Marketplace Seller Face Audits for Marketplace Sales?
Let's delve into the circumstances that trigger audits for marketplace sellers. Should a marketplace facilitator/provider demonstrate that the failure to collect sales tax was due to inaccurate information supplied by the marketplace seller (you), the audit risk and subsequent liability can shift onto the seller for the specific transactions in question.
The term "erroneous information" encapsulates inaccuracies, such as incorrect tax identification numbers (EINs), spelling mistakes, or address discrepancies originating from your seller account.
Unpacking the Calculations Behind Marketplace Seller Economic Nexus Thresholds
The calculation of economic nexus thresholds for marketplace sellers involves several factors. Most states factor in both sales conducted through marketplace facilitators and direct sales when determining these thresholds. However, a subset of eight states solely considers direct sales. This distinction is particularly favorable for sellers whose predominant sales channel is platforms like Amazon, overshadowing sales on personal websites or platforms like Shopify.
Insights Provided by the MTC Whitepaper Regarding Marketplace Facilitators
The MTC whitepaper addresses multiple facets concerning marketplace facilitators:
- Defining Marketplace Facilitator/Provider: Established entities such as Amazon, eBay, and Walmart already fall within this definition. However, emerging concerns surround payment processors, advertisers, and even car rental services. These entities grapple with discerning whether they are obligated to collect sales tax on behalf of their customers or clients.
- Determining the Retailer: A dynamic shift has occurred in the definition of the retailer over the past years. Currently, the marketplace facilitator steps into the retailer's role. While this could prompt those with previous nexus claims to assert non-retailer status and, consequently, avoid sales tax liabilities, the likelihood of states revisiting nexus definitions from several years ago remains low. The fluidity of tax laws, cases, and situations implies inevitable changes, particularly in the realm of sales tax.
- Allocation of Collection Responsibilities: Primarily, the marketplace facilitator shoulders collection duties. However, complexities arise concerning the collection of state fees and additional taxes, which necessitate further examination.
- Certification Requirements: Counterintuitively, this aspect pertains to the marketplace facilitator's obligation to furnish documents to the marketplace seller during audits. This provision empowers the seller to shift scrutiny onto the facilitator during an audit.
- Sharing of Information: Information sharing mechanisms are in place, but concerns arise regarding whether states will employ shared information against the seller when required.
Overall, the prevailing trend appears to favor marketplace sellers in terms of sales tax requirements. However, it is essential not to misconstrue this as a complete exoneration from responsibilities. Even in states where sales tax collection and remittance are handled by marketplace facilitators, obligations persist for sellers, encompassing up to 45 states.
For sellers who have established either physical or economic nexus within various states due to marketplace participation, potential sales tax liabilities may arise. To assist in identifying the inception of nexus and the requisite state registrations, consider availing a sales tax nexus analysis. This resource proves invaluable in comprehending the nexus landscape.
Furthermore, for those engaging in sales through independent platforms like personal websites or Shopify (outside the realm of marketplace facilitators), compliance becomes more intricate as sales volumes escalate. This underscores the necessity to meticulously track sales and transaction data, emphasizing the importance of meticulous record-keeping despite the prevailing landscape.