Marketplace collection laws are a departure from traditional state sales tax rules that contemplate a single buyer and seller. The addition of the marketplace facilitator to a transaction, as the party responsible for collecting and remitting sales and use tax, raises the question of who is the “seller” or “retailer” (hereinafter “seller”) in a marketplace transaction. Not surprisingly, states do not provide a uniform answer to this question.

In California, for example, marketplace facilitators are deemed to be the “seller and retailer for each sale facilitated through its marketplace.” Cal. Rev. & Tax. Cd. § 6042. Indiana similarly deems a marketplace facilitator to be “the retail merchant of each retail transaction . . . that is facilitated for sellers on its marketplace when it . . . (1) Collects the sales price or purchase price of the seller’s products[;] (2) Provides access to payment processing services, either directly or indirectly[; or] (3) Charges, collects, or otherwise receives fees or other consideration for transactions made on its electronic marketplace.” Ind. Code § 6-2.5-4-18(a).

Washington State takes an alternative route, deeming a marketplace facilitator “to be an agent of any marketplace seller making retail sales through the marketplace facilitator’s marketplace.” RCW § 82.08.0531(1). Similarly, in Iowa, a marketplace facilitator is deemed “to be an agent of any marketplace seller making retail sales through a marketplace of the marketplace facilitator.” Iowa Code § 423.14A.d(3)(d).

In contrast, in New York, a marketplace facilitator is granted certain rights and obligations but is not explicitly deemed the seller. New York law grants to a marketplace facilitator “all the obligations and rights of a vendor.” N.Y. Tax Law § 1132(l)(1). These obligations and rights include, but are not limited to, “the duty to obtain a certificate of authority, to collect tax, file returns, remit tax, . . . accept [exemption certificates], the right to receive [a] refunds authorized [by New York law] and the credit [allowed by N.Y. Tax Law § 1137(f)].” Id.

Finally, certain states, including the District of Columbia and New Mexico, do not deem a marketplace facilitator to be a seller or agent. Nor do their laws explicitly confer upon a marketplace facilitator the obligations and rights of a seller.

Why this is important: If the marketplace facilitator is considered the seller, this may impact the rights and obligations of the marketplace and may also create tax implications. For example, it may impact whether the marketplace facilitator is able to file a refund claim, is eligible for vendor compensation or is able to claim sales and use tax credits. Additionally, if the marketplace facilitator is considered the seller, then other charges that are included as part of the sale may thereby become taxable. Finally, the classification of a marketplace facilitator as a seller could also impact the treatment of coupons or other promotional items offered by the marketplace.

What to prepare for: The inconsistent classification of marketplace facilitators among the states may result in the same marketplace transaction having different taxability consequences in different states. This may create some confusion for purchasers. Marketplaces may need to anticipate these issues in order to determine how to handle purchaser inquiries.

Next Monday: Exemptions Certificates

The Multistate Tax Commission (MTC) held its annual meeting in Boise, Idaho August 5, 2019 through August 8, 2019. As part of the meeting, the MTC’s Uniformity Committee (“Committee”), which established the Marketplace Facilitator Work Group (“Work Group”) in 2018, provided an update. By way of background, at its April 25, 2019 meeting in Denver, Colorado, the Uniformity Committee approved a new project to reconvene the Marketplace Facilitator Work Group, to address any follow-up issues arising from the recent enactment of marketplace collection laws in approximately 36 states. The follow-up issues primarily focused on implementation and compliance problems with marketplace collection tax laws. The Work Group sent a survey to Uniformity member states on July 11, 2019 requesting that the states identify and rank the “top 12” issues by priority, from a list of 19 issues provided. The purpose of the survey and study was to develop recommendations to be considered by the Committee at its next meet in San Antonio in November.

The Committee presented the results of the survey at the annual meeting. The Committee indicated that 22 states participated in the study and prioritized the issues as follows:

  1. Definition of marketplace facilitator/provider
  2. Whether marketplace facilitators should have the same rights as a retailer
  3. Recordkeeping, audit exposure and liability protection for marketplace facilitators and remote sellers
  4. Marketplace seller-marketplace facilitator/provider information requirements
  5. Collection responsibility determination between marketplace facilitator and marketplace seller
  6. Marketplace seller economic nexus threshold calculation
  7. Remote Seller sales/use tax economic nexus threshold issues
  8. Development of certification requirements for marketplace facilitators
  9. State information sharing to assist in noncompliance by marketplace facilitators
  10. Whether states should publish clear guidance on taxability and exemptions to assist marketplace facilitators
  11. Return simplification for marketplace facilitators and sellers
  12. Enforcement considerations for foreign sellers

There were seven issues that did not make the “top 12” issues list. These issues include class action lawsuit protection, retroactivity, local sales/use taxes, assessment and notices, registration, security protocols and overall information on implementation.

Based on the survey results, the Work Group will develop recommendations to present back to the Committee. The Committee decided that based on the recommendations, a white paper will be prepared in time for the 2020 state legislative sessions. It was decided that the Committee would not have adequate time before the 2020 legislative sessions to draft and approve a model statute.

The Committee also noted that the National Conference of State Legislatures (NCSL) SALT Task Force met in Nashville, Tennessee on August 4th and August 5th. The Task Force is currently working on considering proposed model statutory provisions to address some of these issues. The Committee indicated that the Work Group efforts ideally would dovetail with the work of the Task Force.

Why this is important: States will likely consider legislative amendments to their marketplace collection laws in the 2020 legislative sessions. The Work Group and Task Force efforts will be influential in legislative revisions proposed by states. To the extent that there are specific concerns or challenges with marketplace collection laws, it will be important to monitor and provide feedback to the Work Group and Task Force.

Next Monday: Treatment of Marketplace Facilitator (Retailer or Not a Retailer)

The Tennessee Court of Appeals held that a commercial printing company’s sales of bank checks and other printed products were subject to Tennessee sales tax even though the products ultimately were sent to out-of-state destinations. Under the company’s standard sales contracts, title to the products it sold transferred in Tennessee when the company tendered its shipments to USPS or a common carrier. The court concluded that the sales were not of products manufactured in Tennessee for export, and thus did not qualify for the manufactured for export exemption from sales tax.

The court also concluded that the company’s sales of “blow-in cards” inserted into magazines did not qualify for a sale for resale exemption. Because the cards were placed in magazines for advertising purposes, and were meant to be torn out and returned to the company, the court determined that the cards did not become “component parts” of the finished magazines.

Check Printers, Inc. v. Gerregano, No. 15-598-IV

Qualification as a “marketplace facilitator” does not by itself give rise to a tax collection obligation. A marketplace facilitator must also have sufficient nexus with a state before it may be obligated to collect the state’s sales and use tax on marketplace sales.

Nexus for marketplaces is generally measured under a similar economic standard as that for retailers. For retailers, the overwhelming majority of states have adopted “economic nexus” laws similar to South Dakota’s threshold of $100,000 of sales or 200 separate transactions in the state as was upheld by the U.S. Supreme Court in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080, 201 L.Ed.2d 403 (2018). However, the calculation of sales and transactions for marketplaces presents additional complications.

First, states vary in determining which sales count towards the economic nexus thresholds for marketplaces. Some states consider only sales made through the marketplace by sellers to determine if the economic threshold has been met, while other states also consider the marketplace facilitator’s direct sales into the state. For example, Washington State law provides that marketplace facilitators should include both the gross receipts and separate transactions from its own direct sales and the cumulative gross receipts and separate transactions from all sales facilitated on behalf of marketplace sellers, including marketplace sellers that otherwise would not be required to collect tax, to determine if the nexus thresholds have been exceeded. RCW § 82.08.052(1). Conversely, Oklahoma recently enacted legislation to revise their marketplace collection law so only sales made through the marketplace facilitator’s forum on behalf of a marketplace seller count towards determining if the marketplace facilitator has nexus. S.B. 513, 57th Leg., 1st Reg. Sess. (Okla. 2019).

Additionally, states vary in how they determine the timing of when these economic nexus thresholds have been met. Some states look to the previous calendar year to determine if the threshold was met to impose collection and remittance requirements, while other states look to both the previous and current calendar year. For example, Alabama’s marketplace collection law applies to any marketplace facilitator that has more than $250,000 in retail sales in Alabama for the preceding twelve months. Ala. Code § 40-23-199.2(b). However, Iowa’s marketplace collection law applies to any marketplace facilitator that has more than $100,000 in Iowa sales for the current or previous calendar year. Iowa Code § 423.14A(3)(d).

There is also additional nexus considerations for sellers that sell through marketplaces because state laws differ in whether a marketplace seller counts sales facilitated by a marketplace facilitator for purposes of determining whether the marketplace seller is required to collect and remit tax on their separate direct sales. For example, California requires a marketplace seller to include all sales made on its own behalf and sales facilitated through a marketplace facilitator’s marketplace in determining whether the marketplace seller has met the state’s economic nexus threshold. Cal. Rev. & Tax. Cd. § 6044. Whereas, Oklahoma’s newly enacted law explicitly states that a seller’s sales made through a marketplace forum are not included in determining whether the seller has met the state’s economic nexus thresholds. S.B. 513, 57th Leg., 1st Reg. Sess. (Okla. 2019). As a result, marketplace sellers may find that their own tax collection obligations will vary in each depending on whether marketplace sales are counted in their own nexus determinations.

Why this is important: The lack of uniformity in the economic nexus provisions means that marketplace facilitators must carefully review the laws of each state to determine if and when it has exceeded the economic thresholds requiring it to register and collect and remit sales or use taxes. Similar transactions may also result in different treatment under the laws of each state. Marketplace sellers must also be aware of the economic nexus provisions in order to ensure that they are complying with their own tax collection obligations.

What to prepare for: Even though a state has an existing marketplace law in place, changes and modifications to those provisions may occur. States have been adjusting their economic nexus provisions by increasing or decreasing the dollar thresholds, abandoning the transaction threshold and revising the sales that count towards the economic nexus thresholds. Furthermore, as state’s issue guidance on existing laws, it is possible there will be further variations made to economic nexus determinations.

Next Monday: The MTC’s “Top 12” Marketplace Collection Tax Issues

On April 10, 2019, the Utah Tax Commission issued a private letter ruling to a video streaming provider (“Taxpayer”) finding that the Taxpayer’s sales of subscriptions entitling subscribers to enhanced features on the Taxpayer’s streaming platform, are not subject to sales and use tax. On its internet-based platform, the Taxpayer provides a video streaming service that is available without charge. The Taxpayer also sells subscriptions to its platform that permit subscribers to enjoy ad-free viewing, chat function enhancements, additional time to save videos and customer support. The Commission determined that since none of the additional services provided through a subscription are separately subject to Utah sales and use tax, the Taxpayer’s sales of subscriptions were also not subject to tax. In particular, the Commission applied the “essence of the transaction” doctrine to find that even though some of the transactions involved use of the Taxpayer’s software and hardware, the Taxpayer was not selling prewritten computer software or tangible personal property to its subscribers.

Utah Tax Commission, Private Letter Ruling 18-002 (April 10, 2019).

This is the second quarter edition of the Eversheds Sutherland SALT Scoreboard for 2019. Since 2016, we have tallied the results of what we deem to be significant taxpayer wins and losses and analyzed those results. This edition of the SALT Scoreboard includes a discussion of the United States Supreme Court’s recent decisions in Kaestner and Hyatt, insights regarding Colorado’s combined reporting litigation, and, to celebrate the opening of our new Chicago office, a spotlight on Illinois tax cases.

View our Eversheds Sutherland SALT Scoreboard results from the second quarter of 2019!

It looks like we have a tax professional on our hands! We’re excited to welcome the newest member of the Eversheds Sutherland SALT Tot team, Reese. She and her proud father, David Gardener, Director of Global Tax at Sonder, are happy, healthy and ready to take on even the toughest tax challenges.

Please join us in congratulating David and his family on their new SALT tot.

Marketplace collection laws have shifted our common understanding of those persons that are responsible for collecting sales and use taxes. Historically, sellers have been responsible for collecting sales or use tax on sales they make to purchasers. Marketplace collection laws shift the tax collection responsibility on sales made through a marketplace from the seller to “marketplace providers” and “marketplace facilitators” (referred to throughout as “marketplace facilitators”).

In general, state tax laws have defined marketplace facilitators either narrowly (e.g., Oklahoma and Pennsylvania) or broadly (e.g., California, New Jersey, and Washington). State laws applying a narrow definition generally contain two requirements to qualify as a marketplace facilitator: (1) a person must facilitate a sale by listing or advertising the sale in a forum, and (2) the person must collect payment from the purchaser and transmit the payment to the seller.

In those states applying a broad definition, a person can qualify as a marketplace facilitator by conducting any one of a series of activities in two broad categories. For example, a broad definition will generally provide that a person qualifies as a marketplace facilitator if it contracts with a seller to facilitate the sale of the seller’s products through the marketplace and engages in one or more specified activities. Such activities typically include:

(i) transmitting or otherwise communicating the offer or acceptance between buyer and seller;
(ii) owning or operating the marketplace infrastructure that brings buyer and seller together;
(iii) providing a virtual currency that buyers may or are required to use to purchase items from a seller; or
(iv) research and development activities related to one of the preceding activities.

In addition, a person qualifying as a marketplace facilitator also engages in one of the following activities with respect to the seller’s products:

(i) payment processing services;
(ii) fulfillment or storage services;
(iii) listing products for sale;
(iv) setting prices;
(v) branding sales as those of the person (as opposed to the seller’s);
(vi) order taking;
(vii) advertising or promotion; or
(viii) performing customer service or accepting/assisting with returns or exchanges.

The two definitions can have varying consequences. For example, under the narrow definition, a person must, at minimum, conduct activities that facilitate the sale of the seller’s property and collect the payment from the purchaser. However, a person that does not collect payment from the purchaser could still be a marketplace facilitator in a state with a broad definition if the person merely lists products for sales and transmits the offer and acceptance between the buyer and the seller.

In addition to the two general definitions of marketplace facilitator, there are other differences in the state marketplace facilitator provisions that can lead to inconsistencies in who qualifies as a marketplace facilitator. These nuances include exclusions from the definition of marketplace facilitator for certain types of sales (e.g., services) or exclusions for marketplace facilitators in certain industries. For example, New York’s definition of “marketplace provider” does not capture a person that facilitates sales of services. N.Y. Tax Law § 1101(e)(1). For example, California law provides an exclusion for a “delivery network company” from its definition of “marketplace facilitator.” Cal. Rev. & Tax. Cd. § 6041.5(a). A “delivery network company,” for purposes of the marketplace exclusion, is defined as a business that maintains an Internet website or mobile application used to facilitate the pickup of local products from a local merchant and delivery of the local products to a customer. Cal. Rev. & Tax. Cd. § 6041.5(b).

Why this is important: The lack of uniformity in the definitions of marketplace facilitator will result in inconsistent tax collection obligations for similar transactions. Persons that qualify as a marketplace facilitator in one state may not necessarily have a tax collection obligation in other states. If a marketplace is not required to collect in a particular state, the seller will remain responsible for collecting and remitting sales tax.

What to prepare for: It is expected that the remaining states without marketplace collection laws will eventually enact such laws resulting in additional differences and nuances in the state laws. Furthermore, modifications and refinements to marketplace laws are expected in those states that already have such laws. As state’s issue guidance on existing laws, it is possible there will be further variations.

Next Monday: Economic Nexus Thresholds for Marketplaces

Meet Winston, a seven-month-old English Labrador Retriever who belongs to Damian Hunt, Director – State and Local Tax at Amazon. Despite being named after a former British Prime Minister, this English Lab is more concerned with royal formalities than political negotiations.

As a puppy, Winston did his best to emulate British monarchs of the past, by having Damian carry him down from his 10th floor office anytime he needed to go outside. What was at first an easy task, quickly turned into a biceps workout as Winston approached 50 pounds.

In their time together, Damian has been teaching Winston how to fetch. While he is great at tracking the ball down, he has yet to master the concept of returning the ball after he retrieves it –putting a potential career as the Wimbledon ball dog in jeopardy.

Winston is known to eat anything he can get his paws on, including a hefty serving of fish and chips from time to time. However, since he is still teething, any treat, including the occasional cardboard box, will do. Winston is still working on learning a few tricks, and while he can’t yet recite Shakespeare soliloquies from memory, he will happily sit for you if you have the right treat.

We are thrilled to feature Winston as our July Pet of the Month!