This white paper is the result of numerous meetings and discussions and the MTC Uniformity Committee will continue to meet during 2020 to address other important issues. Although the white paper is 148 pages in length, for now, we can focus on pages 3-8, the Executive Summary of Findings, and Appendix A and Marketplace Facilitator Sales Tax Collection Model Legislation (also adopted by the National Conference of State Legislatures) on pages 76-80. In addition, the first nine pages are devoted to an executive summary that provides a helpful overview of each of the 13 issues. The issues are addressed in order of priority and the remainder of the paper delivers a much more comprehensive analysis of each issue.
The definition of marketplace facilitator and the determination of collection responsibility (which I will discuss in my next post) are two important priorities on which the Marketplace Facilitator Work Group is providing guidance to state legislatures and tax agencies when they consider new laws or amendments to existing statutes and regulations.
How U.S. States Define Marketplace Facilitators
When it comes to defining “marketplace facilitator” (Issue #1) in their post-Wayfair overhaul of sales tax laws, U.S. states tend to do so narrowly or broadly. The narrow definition, according MTC’s Uniformity Committee, “requires direct or indirect processing or collection of the customer’s payment by the marketplace facilitator/provider.” The broad definition may or may not include this requirement, which can create uncertainty, specifically in the area of collection.
To date, 19 states and the District of Columbia have adopted narrow definitions, whereas 15 states have opted for broader definitions of “marketplace facilitator.” As the draft white paper indicates, “with the broad definition, a business may not have access to the details of the sales transaction and may not handle the customer’s payment.” Additionally, some business participants in the work group have advocated that certain types of companies (e.g., advertisers, payment processors, advertisers and more) should be excluded from statutory definitions of marketplace facilitators. (And some states have outlined certain exclusions in their definitions of marketplace facilitators/providers.)
It’s also important to keep in mind that the National Conference of State Legislatures (NCSL) State and Local Task Force (SALT) finished its draft of model legislation for marketplace facilitator tax legislation. (See Appendix A noted above, as the NCSL and the MTC are communicating and coordinating as they pursue these related efforts.) SALT’s current draft of this model legislation also advocates a narrow definition of marketplace facilitators with certain exclusions.
In other words, narrow is better than broad when it comes to defining marketplace facilitators in the post-Wayfair era. Let’s hope state lawmakers see it that way, too.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.
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.