Qualification as a “marketplace facilitator” does not by itself give rise to a tax collection obligation. A marketplace facilitator must also have sufficient nexus with a state before it may be obligated to collect the state’s sales and use tax on marketplace sales.

Nexus for marketplaces is generally measured under a similar economic standard as that for retailers. For retailers, the overwhelming majority of states have adopted “economic nexus” laws similar to South Dakota’s threshold of $100,000 of sales or 200 separate transactions in the state as was upheld by the U.S. Supreme Court in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080, 201 L.Ed.2d 403 (2018). However, the calculation of sales and transactions for marketplaces presents additional complications.

First, states vary in determining which sales count towards the economic nexus thresholds for marketplaces. Some states consider only sales made through the marketplace by sellers to determine if the economic threshold has been met, while other states also consider the marketplace facilitator’s direct sales into the state. For example, Washington State law provides that marketplace facilitators should include both the gross receipts and separate transactions from its own direct sales and the cumulative gross receipts and separate transactions from all sales facilitated on behalf of marketplace sellers, including marketplace sellers that otherwise would not be required to collect tax, to determine if the nexus thresholds have been exceeded. RCW § 82.08.052(1). Conversely, Oklahoma recently enacted legislation to revise their marketplace collection law so only sales made through the marketplace facilitator’s forum on behalf of a marketplace seller count towards determining if the marketplace facilitator has nexus. S.B. 513, 57th Leg., 1st Reg. Sess. (Okla. 2019).

Additionally, states vary in how they determine the timing of when these economic nexus thresholds have been met. Some states look to the previous calendar year to determine if the threshold was met to impose collection and remittance requirements, while other states look to both the previous and current calendar year. For example, Alabama’s marketplace collection law applies to any marketplace facilitator that has more than $250,000 in retail sales in Alabama for the preceding twelve months. Ala. Code § 40-23-199.2(b). However, Iowa’s marketplace collection law applies to any marketplace facilitator that has more than $100,000 in Iowa sales for the current or previous calendar year. Iowa Code § 423.14A(3)(d).

There is also additional nexus considerations for sellers that sell through marketplaces because state laws differ in whether a marketplace seller counts sales facilitated by a marketplace facilitator for purposes of determining whether the marketplace seller is required to collect and remit tax on their separate direct sales. For example, California requires a marketplace seller to include all sales made on its own behalf and sales facilitated through a marketplace facilitator’s marketplace in determining whether the marketplace seller has met the state’s economic nexus threshold. Cal. Rev. & Tax. Cd. § 6044. Whereas, Oklahoma’s newly enacted law explicitly states that a seller’s sales made through a marketplace forum are not included in determining whether the seller has met the state’s economic nexus thresholds. S.B. 513, 57th Leg., 1st Reg. Sess. (Okla. 2019). As a result, marketplace sellers may find that their own tax collection obligations will vary in each depending on whether marketplace sales are counted in their own nexus determinations.

Why this is important: The lack of uniformity in the economic nexus provisions means that marketplace facilitators must carefully review the laws of each state to determine if and when it has exceeded the economic thresholds requiring it to register and collect and remit sales or use taxes. Similar transactions may also result in different treatment under each states laws. Marketplace sellers must also be aware of the economic nexus provisions in order to ensure that they are complying with their own tax collection obligations.

What to prepare for: Even though a state has an existing marketplace law in place, changes and modifications to those provisions may occur. States have been adjusting their economic nexus provisions by increasing or decreasing the dollar thresholds, abandoning the transaction threshold, and revising the sales that count towards the economic nexus thresholds. Furthermore, as state’s issue guidance on existing laws, it is possible there will be further variations made to economic nexus determinations.

Next Monday: Treatment of Marketplace Facilitator (Retailer or Not a Retailer)