Amazon and Etsy began collecting Washington state sales tax on behalf of third-party merchants this year in a move that caught many sellers by surprise. Next up, Pennsylvania. All thanks to “Marketplace Facilitators” laws.
Sellers are dealing with regulation on a number of fronts heading into 2018, including the ongoing efforts by states to force out-of-state sellers to collect sales tax on items shipped to buyers in their states. Complicating matters are the different approaches states are taking.
Washington enacted a marketplace facilitators law described on this page. Interestingly it states, “Marketplace facilitators that collect sales tax on third-party sales must pay the sales tax directly to the Department of Revenue. They may not give the collected sales tax to their marketplace sellers.”
Pennsylvania enacted a similar law described on this page.
TaxJar noted that Walmart and Etsy are both collecting Washington sales tax on behalf of third party sellers and it expects the two marketplaces to follow in Amazon’s footsteps with regard to Pennsylvania. “Etsy and Walmart sellers may reasonably expect to be notified about sales tax collection, though both marketplaces missed the January 1, 2018 deadline.”
States are using different approaches to try and collect sales and use tax. For example, Massachusetts coerced Amazon into divulging information about sellers who use its FBA fulfillment service.
Rhode Island did something similar, according to TaxJar, but it’s not limited to sellers who use FBA.
Connecticut coerced some non-collecting online merchants to agree to either begin collecting tax on Connecticut sales or else turn over three years’ worth of electronic sales records for all individual sales made to customers with Connecticut addresses, according to Avalara.
The Supreme Court will hear the South Dakota v. Wayfair, Inc. case next month, which could have big implications in the online sales tax debate. Interestingly when it ruled in Quill Corp. v. North Dakota in 1992, it wrote that “the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve. No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions.”
In a recent article, Rep. Kristi Noem (R-S.D.) said that Congress should act before the High Court rules in June, otherwise there would be chaos, and businesses could immediately be responsible for collecting and remitting sales taxes.
Her spokesperson told BNA, “To add to the confusion, this requirement would be determined state-by-state. It could also be retroactive, creating even more chaos. There would be no infrastructure in place for this to happen, potentially causing a free-for-all.” She noted small businesses would be subject to 10,000 separate audits given there are that number of different tax structures in the US.
For some online sellers, it may feel as though the chaos has already begun.
Washington State has a destination based sales tax with a RTA tax overlay districts that don’t follow ZIP code boundaries. Each address must be looked up to determine the correct tax rate. What if the transaction is wholesale to a buyer with an in-state sales tax ID?
@cfrphoto: If the buyer has a valid Washington reseller permit and the purchase is for resale then no sales tax is due on the transaction. You can find out what qualifies as items for resale on our website, dor.wa.gov. Business and occupation tax (B&O) is due on sales for resale under the wholesaling classification if the seller has nexus (physical or economic) in the state of Washington. Hope that helps. Taxpayers can also call 1-800-647-7706 if they have additional questions.