Who’s Responsible for Collecting Sales Tax on Marketplace Transactions?

Marketplace facilitators vs. marketplace sellers

Marketplace Facilitator Tax Responsibility

When an online marketplace transaction occurs, is the marketplace facilitator/provider responsible for collecting and reporting the sales tax on that transaction—or is that the job of the marketplace seller?

Based on the post-Wayfair marketplace facilitator laws and rules that have been enacted in more than 36 states so far, the answer varied until recently.

Guidance for State Legislatures & Tax Agencies

That lack of uniformity is not at all ideal from a corporate tax management perspective, which helps explain why collection responsibility determination ranks as one of the most important priorities of the 13 issues the Multistate Tax Commission’s Marketplace Facilitator Work Group provided guidance on to state legislatures and tax agencies considering new laws or amendments to existing statutes concerning marketplace facilitators in 2020. (As I mention in this post, the definition of a marketplace facilitator/provider also rates as an especially crucial issue.)

The Marketplace Facilitator Work Group, which I participate in, recently published a final white paper containing extensive analysis of these 13 marketplace facilitator/sales tax issues. The first nine pages are devoted to an executive summary that provides a helpful overview of each of the 13 issues. The rest of the 135-page document delves into a far deeper analysis of each issue. Additionally, the National Conference of State Legislatures (NCSL) State and Local Task Force (SALT) has released model legislation for marketplace facilitator tax legislation. The NCSL and the MTC coordinated efforts in drafting the model act.

Most states that have enacted new marketplace facilitator sales tax rules do not permit the marketplace facilitator and marketplace seller to negotiate which party owns collection and reporting responsibilities. Nor do most of these rules allow state tax agencies to waive that collection and/or reporting requirement.

That said, some states have included provisions in new laws that allow marketplace facilitators and sellers to contractually negotiate which party has the collection and reporting responsibility. A handful of other states include provisions that allow the state department of revenue to waive the marketplace facilitator collection and reporting requirement in certain situations.

Organizations Need Clarity from the State

The current draft of the NCSL’s model legislation suggests that state legislatures consider waiver language, subject to certain limitations. Additionally, as the MTC’s draft white paper notes, many companies and their tax departments advocate that states “provide more flexibility in their laws, through either allowing the parties to negotiate collection responsibility or waiver provisions.” The paper also indicates that states considering such negotiation or waiver provisions “should balance the need to address special situations against the risk of undermining the effectiveness of the marketplace facilitator/provider collection model, if those provisions are made too widely available.”

We’ll keep you posted as states progress in their work to adjust their Marketplace Facilitator rules.

Explore more resources from our industry influencers:

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Chief Tax Officer, Transaction Tax

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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