If 2019 was the year of sales tax economic nexus, 2020 may become best known for marketplace facilitator sales tax laws.
More than 38 states — and counting — have laws requiring marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. In the coming year, other states are likely to follow suit. Indeed, marketplace legislation is already under consideration in North Carolina.
Furthermore, states may consider revising their marketplace laws as they learn more about the impacts of these laws on marketplaces and individual sellers. There are many issues to sort out: Should the collection requirement apply to referrers as well as more traditional marketplaces, or to food delivery vendors? Should it apply when other types of taxes are at stake (e.g., communications or lodging taxes)? Under what circumstances should individual sellers be held liable, if any?
Sussing out these issues won’t be easy, but additional clarity is needed. The National Conference of State Legislatures and the Multistate Tax Commission (MTC) are both encouraging states to examine and improve their marketplace sales tax laws.
In the meantime, marketplace facilitators and sellers need to comply with these laws — and compliance is complicated by the fact that the laws tend to vary from state to state. Questions to be answered in each state include, but aren’t limited to:
- How soon after crossing an economic nexus threshold does a remote seller or marketplace need to register?
- Do in-state or out-of-state marketplace sellers need to obtain a sales tax license if they only sell through marketplaces that collect and remit tax on their behalf?
- Do marketplace sales and individual sales need to be reported separately?
- Do collection requirements extend to local sales taxes?
Beyond the marketplace
For the reasons explained above, marketplace facilitator legislation is almost certain to be a hot topic in 2020. However, it won’t be the only sales tax issue to make headlines.
In the coming months, states will grapple with whether transportation services should be subject to sales tax. And what about feminine hygiene products? Or digital products?
Lawmakers in New Hampshire, a state that doesn’t have sales tax, will have to decide whether the state’s need for more revenue justifies imposing a tax on the retail sale of certain electronics. Local governments in Alaska, which has local sales taxes but no statewide sales tax, will decide whether to require out-of-state sellers to collect local taxes. Some states will consider whether to extend economic nexus to other taxes, such as corporate income or franchise tax.
And there will be plenty of rates to change, especially in the 38 states with local sales taxes.