Introduction about U.S. Marketplace Facilitators and Sales Tax
With the establishment of Economic Nexus, many states have enacted Marketplace Facilitator Acts (MFAs) that require some Marketplace Facilitators to be responsible for collecting and remitting sales tax on behalf of remote sellers. Marketplace Facilitators generally are required to obtain a seller’s permit or register a seller’s sales tax number firstly for a marketplace or platform’s seller in a particular state, and then provide all marketplace sellers with an authorization document stating that they are required to collect and remit sales tax on sales transactions through their platform in that state.
For example, the Amazon platform is considered as one of the largest Marketplace Facilitators, and will be responsible to calculate, collect, remit, and refund state sales tax on the sales sold by remote sellers for transactions destined to states where Marketplace Facilitator and/or Marketplace collection legislation is enacted.
Below are the summaries that remote sellers need to keep in mind when selling on a Marketplace Facilitators platform:
- Remote sellers should understand U.S. state regulations on Marketplace Facilitators
While Marketplace Facilitators collect and remit sales tax on behalf of remote sellers, whether remote sellers are required to apply for a sales tax number or obtain a seller’s permit varies from state to state in the United States. Here’s an example from California.
In California, if all of goods are sold on a Marketplace Facilitators platform which has registered on the California Department of Tax and Fee Administration (CDTFA), remote sellers are not required to apply for a separate seller’s permit. Conversely, if a Marketplace Facilitators is not registered on the CDTFA, remote sellers need to take California’s economic nexus thresholds into consideration, (https://www.kaizencpa.com/Knowledge/info/id/944.html) and apply for sales tax ID number or a seller’s permit on the CDTFA by themselves.
- Remote sellers should understand the sales tax collection rules for each Marketplace Facilitators
Sometimes, remote sellers may sell online on multiple Marketplace Facilitators platforms. In this case, the seller also needs to understand the sales tax collection rules of each platform. Generally, Marketplace Facilitators do not monitor whether a remote seller’s sales or number of transactions meets a state’s economic nexus threshold but calculate and withhold sales tax directly based on the tax rate of the state in which the customer purchased the goods, as is the case with Amazon.
It’s important to note that not all Marketplace Facilitators platforms calculate and withhold sales tax for remote sellers. For example, Shopify collects sales tax at the rate of the state in which the customer purchased the item, but Shopify does not remit sales tax on their behalf. Remote sellers will need to apply for their own sales permit and report their sales revenue regularly to remit sales tax.
In summary, if a Marketplace Facilitators platform does not provide a sales tax filing service, then selling on that platform is the same as on a standalone site, and the seller will need to monitor sales or the number of transactions to see if they meet the economic nexus thresholds, apply for a sales permit, and report the sales revenue regularly to remit sales tax.
- Remote sellers should understand reporting requirements for sales at Marketplace Facilitators
If a remote seller sells on both Amazon and Shopify and is required to file a sales tax return due to reaching the economic nexus threshold, what do you do with the sales revenue that Amazon has already withheld and paid sales tax on your return? There are generally two cases, below are examples from Texas and Illinois.
In Texas, remote sellers are required to report the revenue from sales on the Amazon and Shopify in aggregate on the gross sales, with the revenue from sales on the Amazon entered in the deductions or non-taxable sales.
In Illinois, remote sellers, on the other hand, do not need to report on their sales tax returns the revenue from sales made by Marketplace Facilitators that have collected sales tax on their behalf, but only the revenue from sales made on the Shopify.
Reference:
https://www.streamlinedsalestax.org/for-businesses/marketplace-facilitator
https://www.cdtfa.ca.gov/industry/MPFAct.htm
https://comptroller.texas.gov/taxes/sales/remote-sellers-marketplace-faq.php
https://tax.illinois.gov/research/taxinformation/sales/frequently-asked-questions-faqs-for-marketplace-facilitators-marketplace-sellers-and-remote-retailers.html
https://help.shopify.com/en/manual/taxes/us
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