What is a Marketplace Facilitator Tax?
And How do I Account for It?
If you sell or buy products online using marketplaces like Etsy, Amazon or others, you need to know about a unique sales tax specifically aimed at marketplace sales under the marketplace facilitator laws.
What is the Marketplace Facilitator Tax?
A 2018 landmark Supreme Court decision (South Dakota v. Wayfair) provided that states can mandate that businesses without a physical presence collect and remit sales tax on transactions in the state.
Recognizing the significant loss of sales revenues, states realized the need to shift the burden from collecting taxes from individuals to businesses. Burdened with this new responsibility, many small businesses simply could not comply. As a result, states redefined the size of businesses required to collect sales tax to only the largest out-of-state businesses.
Spurred from the idea that states should be collecting sales taxes from one entity (Amazon, etc.) rather than thousands of smaller businesses, the marketplace facilitator laws became a way for states to generate much-needed tax income. Marketplace facilitator laws sprung up around 2017, after many states recognized that while Amazon had started taxing sales of its own products, it wasn’t charging sales tax on third-party, or marketplace, sales and a significant portion of sales were going untaxed.
Before this type of tax law, each of the third-party sellers was responsible for collecting and remitting their own sales taxes.
Why Marketplace Facilitator Laws are Confusing
Each state has its own marketplace facilitator laws and rates, and even its own definition of a facilitator. As of 2020, 45 states have put laws in place to move the burden of tax collection to the marketplace facilitator. Of the 45 states that have sales tax, only Florida, Kansas, and Missouri have not enacted some form of marketplace facilitator tax law. Kansas has currently taken the position that all out-of-state businesses are required to register and collect sales tax which renders a marketplace facilitator tax law unnecessary.
In addition, marketplace facilitator tax laws often apply to third-party food delivery companies. If you own a restaurant, this makes filing your sales tax returns more difficult as you must determine who is remitting the sales tax for delivery sales.
How to File Your Sales Tax Return When Marketplace Tax is Collected
If your state tax return includes sales to customers in states with marketplace facilitator laws, you need to confirm that the facilitator has indeed remitted all collected taxes associated with your sales. If so, these sales will be exempted from tax or subtracted from your sales depending on what state you are filing in.
If you have questions about marketplace facilitator laws, please contact us or your Mize CPAs tax professional.