TN Extends Sales Tax Collection to Marketplace Facilitators

Tennessee is the most recent, and one of the last, state to adopt a new tax collection law to third-party TN Sealmarketplace facilitators.  On April 1, 2020, Gov. Bill Lee signed Senate Bill 2182, which takes effect on October 1, 2020.

 

Since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., most states have now moved to extend their local sales tax collection requirements to third-party marketplace facilitators.

 

SB 2182 defines a “marketplace facilitator” as any business that meets both of the following requirements:

  1. The business provides, for compensation, a “physical or electronic marketplace” to facilitate the sale of goods or services subject to Tennessee sales tax; and
  2. The business “directly or indirectly” collects payments from consumers on behalf of sellers who use the marketplace.

This definition excludes firms that only provide payment processing services. So for instance, if a seller receives payment from a customer through PayPal, that does not make PayPal a marketplace facilitator under SB 2182. But if the seller used eBay and PayPal in tandem to conduct the sale and process the customer’s payment, then eBay/PayPal would be responsible for collecting any Tennessee sales tax due.

 

Even if a business qualifies as a marketplace facilitator, the obligation to collect sales tax does not kick in unless the total sales made or “facilitated” involving Tennessee customers exceeds $500,000 during the previous 12-month period. The marketplace facilitator also does not have to collect sales tax in either of the following scenarios:

 

  • An individual seller with “gross sales” exceeding $1 billion per year signs a separate agreement with the marketplace facilitator in which the seller agrees to collect and remit sales tax; or
  • “Substantially” all of the sellers who use the marketplace facilitator’s platform are “registered dealers” required to collect and remit sales tax to Tennessee, which allows the state’s Department of Revenue to issue a waiver to the facilitator.

A marketplace facilitator will also not be held liable for any sales tax due if a seller provides “incorrect or inaccurate information,” so long as the facilitator “made a reasonable effort” to obtain the correct information. SB 2182 also forbids consumers from filing a class action lawsuit against a marketplace facilitator “relating to the over-collection of sale or use taxes.” Furthermore, if a marketplace facilitator fails to collect sales tax for any reason, consumers may still have to pay any applicable use tax on their purchases.

TN starballWill SB 2182 Help Make Up the Sales Tax Losses from COVID-19?

Krista Lee Carsner, the executive director of the Tennessee General Assembly’s Fiscal Review Committee, wrote in a revised March 2 fiscal note that requiring marketplace facilitators to start collecting sales tax would increase state revenues by approximately $84.8 million during the current fiscal year, and more than $113.1 million in subsequent years. Carsner said these estimates were based on a 2017 study from the U.S. Government Accountability Office, which found that approximately 38 percent of “collectible revenues” comes from online sales, with 46 percent involving a marketplace facilitator.

 

It’s worth noting Carsner’s note came just before the onset of the COVID-19 pandemic, which has already forced state and local officials throughout the country to revise their estimates of sales tax revenues, at least in the short term. For example, WBIR-TV in Knoxville, Tennessee, recently reported that city officials prepared their current budget assuming sales tax revenues of $174 million. But as COVID-19 has forced the temporary closure of many businesses, Knoxville officials now believe they could face a sales tax shortfall of as much as $18.2 million.

 

And while you might think collecting sales taxes from online marketplace facilitators would help make up this shortfall, keep in mind that SB 2182 will not take effect until October–so any new revenues may come too late to help state and local governments during their current fiscal year.

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Louisiana vs Wal-Mart.com

Louisiana Supreme Court Finds Wal-Mart.com Does Not Have to Collect Sales Tax on Behalf of Third-Party Sellers

The U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair opened the door for states to require out-of-state sellers to collect sales tax even if they lacked a “physical presence” within that state. A majority of states have subsequently imposed such requirements. For example, as of July 1, 2020, businesses that sell their products online to customers in Louisiana must start collecting state and parish (county) sales taxes.

 

There is also the separate but related issue of “marketplace facilitators.” These are businesses that allow or facilitate third-party sales. Amazon and Wal-Mart, for example, allow third-party merchants to conduct sales through their websites. Most states included language in their post-Wayfair legislation that require these marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. Louisiana’s law, however, did not include such language.

Despite this, Louisiana’s Jefferson Parish attempted to force Wal-Mart.com to remit taxes on third-party sales made through the site between 2009 and 2015. The parish’s sheriff, who also serves as its tax collector, argued that under pre-Wayfair law, Wal-Mart.com was properly classified as a “dealer” required to collect tax. On this basis, the sheriff sought a court order directing Wal-Mart.com to pay nearly $1.9 million in back sales taxes.

 

 

Although two lower courts ruled in favor of Jefferson Parish, a divided Louisiana Supreme Court agreed with Wal-Mart.com that it was not a dealer for purposes of sales tax collection. Justice John L. Weimer, writing for a 4-3 majority, said the legislature broadly defined “dealer” in the pre-Internet age to include out-of-state businesses that primarily sold goods through a mail-order catalogue. The key, however, was that these dealers actually owned the goods they were selling. In contrast, Weimer said there was no evidence the legislature ever intended dealer to cover “intermediaries that are only tangentially involved in sales transaction, such as a marketplace facilitator relative to sales by third party retailers.”

Court Points to Special Exception for Auctioneers as Proof Marketplace Facilitators Are Not “Dealers”

 

Weimer compared marketplace facilitators like Wal-Mart.com to auctioneers. It was generally accepted in Louisiana that auctioneers did not have to collect sales tax on goods sold at auction. The legislature therefore adopted special legislation requiring auctioneers to register as “dealers” and start collecting sales tax. The need for such legislation at all meant that third-party facilitators are presumably not “dealers,” Weimer noted. Indeed, to assume that facilitators were dealers, as Jefferson Parish urged, would mean that “any intermediary that aids or enables sellers to reach new customers although not selling anything” directly could be held responsible for collecting sales tax. Weimer said that would be an “absurd result.”

 

In a dissenting opinion, Chief Justice Bernette Joshua Johnson said she would hold that Wal-Mart.com “is responsible for collecting and remitting the taxes from sales of third party retailer items on its online Marketplace.” As the chief justice saw the case, Wal-Mart.com was not a “hands-off bystander” to these transactions. To the contrary, she noted that Wal-Mart.com “has sole control over the website as well as sole control of marketing of products.” More importantly, it owned the actual transaction information–the customer’s credit card information. Johnson said she was also troubled that the terms of Wal-Mart.com’s marketplace retailer agreements “effectively disallows collection of sales taxes by remote sellers.”

Louisiana Legislators May Moot Long-Term Impact of Court’s Ruling

 

In the end, the Supreme Court’s decision may only give Wal-Mart.com and other marketplace facilitators a brief reprieve. Two bills are currently pending before the state legislature that would bring Louisiana in line with the majority of states that now require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. One of the bills, SB 138 expressly states a marketplace facilitator must collect tax even if it is not a dealer. However, the bill would only apply to marketplace facilitators that derive more than $100,000 in gross sales or complete at least 200 transactions in Louisiana annually.

 

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Leveling the Playing Field for Illinois Retail Act

Illinois Will Require Online Marketplaces to Collect Sales Taxes for Out-of-State Sellers Starting in 2020

Illinois was quick to jump on the post-Wayfair bandwagon in requiring out-of-state businesses to start collecting sales taxes on purchases made by in-state customers. Now the state has gone a step further. On June 28, 2019, Illinois Gov. J. B. Pritzker signed into law Senate Bill 690, which impose new collection requirements on online marketplaces starting on July 1, 2020. SB 690 also directs Illinois officials to implement new automated systems to assist businesses in complying with the law.

Thresholds Set for Remote Retailers

SB 690, officially named the “Leveling the Playing Field for Illinois Retail Act” by the state legislature, says that a “remote retailer” must collect sales tax if its “gross receipts from the sales of tangible personal property to purchasers in Illinois are $100,000 or more,” or the retailer makes more than 200 separate sales transactions to Illinois buyers during the tax year. In this context, a remote retailer includes a business that facilitates transactions between a buyer and a third-party seller.

 

For example, if a small business in Oregon sells goods to Illinois customers through Etsy, then Etsy is considered the remote retailer and must take responsibility for collecting and remitting any applicable sales tax. As far as Illinois law is concerned, Etsy is the actual retailer as opposed to the third-party seller.

And while Etsy is obviously one of the larger online marketplaces, any platform whose total sales exceed the $100,000-or-200-transactions threshold meets the definition of remote retailer. This includes first-party sales made by the platform itself in addition to all third-party transactions.

 

The platform is also responsible for determining whether it meets the threshold. This determination must be made on the last day of the month for March, June, September, and December. If at each of these times the remote retailer made enough sales to meet or exceed the threshold during the preceding 12-month period, it must subsequently collect and remit sales taxes to Illinois for the following 12-month period.

The marketplace must also certify to its individual third-party sellers that it has assumed all responsibility for complying with Illinois sales tax rules.

For their part, third-party sellers must keep records of any sales they make to Illinois customers through an online marketplace starting no later than July 2020.  But to reiterate, the third-party seller is not liable for collecting taxes on marketplace sales, and such sales will not count towards the third-party seller’s individual threshold under SB 690. So if our hypothetical Oregon retailer makes all of her Illinois sales through Etsy, as opposed to filling orders directly, she is not responsible for collecting or remitting any tax on her own.

 

New Regulations for Service Providers, Automated Systems, Coming by the End of the Year

SB 690 directs the Illinois Department of Revenue to “establish standards for the certification of certified service providers and certified automated systems” to assist out-of-state businesses in complying with their sales tax collection obligations.

 

A certified service provider (CSP) is a business authorized by the Department to “perform the remote retailer’s use and occupation tax functions,” while a certified automated system (CAS) is any software used by the State to perform sales tax calculations. The Department must adopt CSP and CAS regulations no later than December 31, 2019, and have the systems up-and-running by July 1, 2020.

 

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phone apps

Georgia House Goes a Step Further to Collect Sales Taxes

Georgia House to Require “Marketplace Facilitators” like Uber, Airbnb, and Ebay to Collect Sales Taxes

In the wake of the U.S. Supreme Court’s June 2018 decision in South Dakota v. Wayfair, Inc., a number of states have quickly moved to require out-of-state Internet-based sellers to collect and remit sales taxes on in-state purchases. For example, a new law took effect in Georgia on January 1, 2019, mandating retailers collect that state’s 4 percent sales tax for all online sales.

Now, Georgia legislators may go a step further and compel “marketplace facilitators” like eBay, Uber, and Airbnb to collect state sales tax on transactions completed by their users.

House Bill 276

On March 4, the Georgia House of Representatives passed House Bill 276 by a vote of 158-6. HB 276 proposes to expand the definition of what businesses qualify as “dealers” required to collect and remit sales tax. Specifically, the bill states anyone who “[a]cts as a marketplace facilitator to facilitate retail sales” in excess of $100,000 per year is now a dealer.

A “marketplace facilitator,” in turn, is any business that provides services designed to “facilitate a retail sale that is taxable” under Georgia law.

This includes but is not limited to the following:

  • providing any physical or electronic infrastructure to to bring “purchasers and marketplace sellers together”;
  • transmitting or communicating any offers (or acceptance of offers) between purchasers and sellers;
  • processing and collecting payments from purchasers on behalf of sellers;
  • taking orders or reservations on behalf of sellers; or
  • providing advertising, marketing, or other promotional services.

To put this in practical terms, HB 276 would likely apply to the following situations:

  • A resident of Macon, Georgia, purchases a computer on eBay from an out-of-state seller. HB 276 requires eBay to collect and remit the Georgia sales tax on this purchase.
  • A group of friends in downtown Atlanta arrange for a ride via the Uber app. HB 276 requires Uber to collect and remit the sales tax on this sale.
  • Out-of-state tourists arrange to stay in a private home in Augusta by making a reservation using Airbnb. Now Airbnb must then make sure to collect and remit the sales tax.

In other words, this Bill shifts the burden of dealing with sales taxes away from the individual sellers; many of whom may be too small to register with Georgia authorities; and places it on the companies that “facilitate” transactions with the purchasers.

GA Stands to Receive Millions from Online Sites

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