The United State Supreme Court issued its seminal decision in South Dakota v. Wayfair over a year ago now but the ramifications still continue to unfold in states across the nation. The Wayfair case allows states to impose sales and use tax obligations on remote sellers if they exceed economic nexus thresholds for sales volumes or the number of in-state transactions. About 35 states have adopted an economic nexus standard in one form or another.
Marketplace Facilitator Laws
At the same time, states are also adopting so-called “marketplace facilitator” collection laws. Marketplace facilitators are generally defined as companies that work with third-party vendors to sell their goods and services on their platform. These marketplace facilitators include familiar companies such as Amazon, Walmart.com, eBay, and others.
The marketplace collection laws require marketplace facilitators to collect and remit sales and use tax on their own sales directly to consumers and sales that third party vendors make to consumers using their platform. The Multistate Tax Commission has a work group that has identified 33 states and the District of Columbia as adopting marketplace facilitator laws. The laws have various effective dates but at least 22 have already taken effect.
Be Proactive Not Reactive
These marketplace facilitator laws will likely make it easier for states to collect sales and use tax from online sales. But for small and medium size businesses the compliance burden is growing more and more nuanced and confusing. Depending on the circumstances, marketplace sellers may no longer need to collect and remit sales tax if all of their sales are made through marketplace facilitator platforms in states with marketplace collection laws. Various state laws have different nexus thresholds, varying rules regarding which sales are taxable, nontaxable, or exempt, and specialized documentation, reporting, and audit procedures. Efforts to be proactive with tax compliance and prepare for tax law changes are more important than ever for multistate and online businesses operating in today’s marketplaces.