Marketplace Facilitator Changes Unveiled in 2023

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?

When a marketplace seller engages in selling goods through online platforms or marketplaces, they may face audits for marketplace sales under certain circumstances. These audits typically occur when tax authorities suspect non-compliance with sales tax laws or regulations. Several factors can trigger an audit for marketplace sellers:

Sales Volume Thresholds: Many states have established sales volume thresholds that trigger sales tax registration and reporting obligations for marketplace sellers. Once a seller surpasses these thresholds, they become subject to scrutiny by tax authorities, who may initiate audits to ensure compliance with sales tax laws.

Inconsistent Reporting: Discrepancies or inconsistencies in sales tax reporting can raise red flags for tax authorities and prompt audits. This includes discrepancies between reported sales and income, inconsistencies in tax collection and remittance, and discrepancies in the reporting of taxable and non-taxable sales.

Failure to Register: Marketplace sellers who fail to register for sales tax collection and remittance when required to do so may face audits to determine their tax liabilities and assess any penalties or fines for non-compliance.

Exemption Certificate Issues: If a marketplace seller claims exemptions for sales made through online platforms but fails to obtain or maintain valid exemption certificates from buyers, they may be subject to audits to verify the validity of claimed exemptions.

Cross-Border Sales: Marketplace sellers who engage in cross-border sales, particularly those selling goods internationally, may face audits from both domestic and foreign tax authorities to ensure compliance with sales tax laws in each jurisdiction where sales occur.

Overall, marketplace sellers should ensure compliance with sales tax laws and regulations, including timely registration, accurate reporting, proper tax collection and remittance, and maintenance of required documentation. By proactively addressing potential audit triggers and maintaining meticulous records, sellers can reduce their risk of facing audits for marketplace sales.

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:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.