Top 10 Marketplace Facilitator Issues: Part 1

Read about some of the complexities marketplace facilitators are facing around new legislative tax trends.

  • September 24, 2020

Wayfair: The Perfect Storm for Digital Marketplaces

By inserting economic criteria and thresholds alongside the traditional physical presence rules for establishing nexus, Wayfair created a perfect storm for digital marketplaces. States started looking around for a convenient way to enforce sales and use tax collection and remittance obligations on out-of-state remote sellers that would not or could not scale up their tax operations to meet the demands of the Wayfair era. Their gaze quickly fell on marketplace facilitators (MPFs) – the businesses that provide digital platforms to facilitate remote sales. By requiring MPFs to collect and remit on behalf of the sellers, states could hugely reduce the effort and cost of enforcing compliance.

Nearly every state that imposes sales tax now has marketplace facilitator provisions in place. Earlier this year, the National Conference of State Legislatures (NCSL) released model legislation containing statutory language for the states. In addition, the Multistate Tax Commission’s Uniformity Committee re-issued a white paper to provide guidance to state legislatures and tax agencies for the 2020 legislative sessions.

The white paper is a must-read for any MPF serving sellers in multiple states, as it reveals some of the complexities around this new legislative trend. It explores more than a dozen issues that legislatures – and, by extension, MPFs – are facing and mentions a handful more that didn’t make the top cut. I’ll cover the first five here, and the rest of the Top 10 in an upcoming post.

Five Issues Faced by Legislatures & Marketplace Facilitators

  1. What’s the definition of a marketplace facilitator (aka “marketplace provider” in some state laws)? States have adopted various definitions, but clearly the MPF must be a party that has access to the financial transaction information and payment. Some states have adopted exclusions for companies that provide certain services, such as newspaper or internet advertising, payment processing or delivery of local products.
  2. Who is the retailer? Under most states’ new requirements, the facilitator is now essentially the retailer – the MPF “steps into the shoes” of the retailer, assuming a range of responsibilities such as claiming bad debts and handling refunds.
  3. Who is responsible for recordkeeping, audit exposure and liability protection? Generally, the MPF is the audited entity, responsible for recordkeeping and liable for improper sales tax collection (unless the MPF receives erroneous information from the seller).
  4. How are information requirements distributed? Sellers need information from the MPF to file their tax returns. States are leaning toward requiring sellers to provide accurate information about their products so MPFs can categorize their product for taxability.
  5. How is collection responsibility determined? The onus is generally on the facilitators, with very few exceptions – for example when the seller was already collecting the tax.

I’ll pick up the next five issues in the great marketplace facilitator debate in my next post.


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. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

Blog Author

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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