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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