We recently shared an overview of Washington’s New Marketplace Fairness solution. While we’re skeptical it will help rather than hinder, it’s important you know additional details about marketplace facilitators and sellers.
Marketplace Facilitator Overview
- Starting in January 2018, marketplace facilitators will need to collect sales tax on behalf of marketplace sellers that have not established a physical presence, or nexus, within the state.
- Facilitators are responsible for collection of sales tax if they themselves have nexus in Washington State or $10,000 or more in retail sales within the state. This can include their own products as well as sales they make on behalf of a remote seller.
- What exactly do these facilitators need to do? As the Department of Revenue explains:
- Collect and pay sales tax on sales to Washington consumers
- Follow the use tax notice and reporting requirements [as explained].
Defining a Marketplace Facilitator
According to Washington’s Engrossed House Bill 2163, Part II, a marketplace facilitator (companies such as eBay or Amazon) participates in three activities:
- Facilitates a seller’s product and the payment for this product through a marketplace.
- Facilitates the transaction by bringing a buyer and a seller together through a variety of methods (communicating the offer/acceptance between them, owning the infrastructure or technology between them, providing virtual currency they use, etc).
- Facilitates the transaction through processing the payment, storing the product(s), listing products, determining the prices, taking the orders, promoting the products, assisting with returns/exchanges, etc.
Where Does Sales Tax Come In?
If a seller using the marketplace facilitator’s services has a physical presence in the state, the seller needs to begin to collect and remit sales tax, however if the seller does not establish nexus, the facilitator can choose to collect and remit sales tax or they can choose to provide notice and reporting.
Collecting & Remitting Sales Tax
- Marketplace facilitators collecting sales tax from a third-party sale are required to send the amount collected directly to the Washington Department of Revenue, rather than to the marketplace seller.
- If the marketplace facilitator is going to collect and remit sales tax, they need to register a new tax reporting account by applying for a business license.
- The marketplace facilitator also needs to report third-party sales separately from the sales tax from their own products they sell.
Notice & Reporting
If the marketplace facilitator chooses not to collect and remit sales tax, they are required to:
- Notify Washington shoppers about the use tax reporting obligation via website, catalogs and other media used during the sale.
- Send each Washington customer an annual report of purchases they made that didn’t include sales and use tax.
- Send a report to the Washington Department of Revenue that provides names, addresses and sales made to Washington customers in which sales and use tax wasn’t collected.
As you can tell, this new approach to online sales tax provides much more reporting – even if the marketplace facilitator isn’t collecting and remitting sales and use tax. And it sounds a little “Big Brother” – right? But Washington is not the first and only state passing this kind of legislation. It comes on the heels of action by Colorado – the first state to require customer reporting (learn more about it here).
What do you think of this new legislation? Share in the comments below!
Also, contact us if you have any questions about multi-state tax issues or the online sales tax debate. We’d love to help you out!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects. To learn more, contact us today at www.MilesConsultingGroup.com.