I. Background on Marketplace Facilitator Laws

Marketplace facilitator laws require significant online eCommerce marketplaces to take over specific sales tax responsibilities for independent third-party sellers using their platforms and services.

More specifically, marketplace facilitators like Amazon, eBay, and Shopify are mandated to calculate appropriate sales tax rates across thousands of state and local jurisdictions. They must then collect tax from buyers, file accurate periodic sales tax returns, and directly remit those revenues to government bodies. This obligation applies to any transactions done via the marketplace, even when the products themselves are owned and shipped by separate merchants.

Previously, independent sellers were exclusively responsible for registering with tax authorities, integrating required software, submitting individual tax filings, collecting customer payments, and absorbing compliance costs. However, policymakers in over 35 states now designate major multi-seller platforms as the sales tax collection agents for all aggregated transactions.

The push stems from states needing more unified systems, wanting easier enforcement to reach into eCommerce, and seeking revenues lost from remote sellers not compelled to comply with complex location-based sales tax laws. However, facilitator laws must adequately account for seller discounts, administrative burdens on marketplaces, and hidden liability risks now imposed on small vendors under these regimes.

II. The Cost of Lost Revenue for eCommerce Retailers

By deeming online marketplaces like Amazon and eBay as sales tax collectors on behalf of third-party sellers using their platforms, facilitator laws strip away a key source of savings once available to small and medium eCommerce businesses.

Historically, individual sellers could register with state revenue departments to receive valuable vendor discounts on collected sales taxes before remitting the balance owed. These seller discounts ranged from 1-5% of total sales tax liability, delivering concrete savings that could be reinvested into business growth.

However, under marketplace facilitator regimes now enacted in over 35 states and counting, third-party sellers forgo access to these discounts. Instead, taxes must be collected, aggregated, and remitted by the marketplace entity under its accounts – without discounts passing down to underlying merchants and retailers.

Industry groups estimate that lost seller discount savings could cost e-commerce businesses over $1 billion in annual sales tax costs. This manifests as reduced margins and profitability for tech-enabled small and medium retailers striving to compete in the modern digital economy. It also limits funding for further innovation, inventory, marketing, and job growth.

Marketplace facilitator laws strip crucial savings from smaller players to benefit state coffers and simplify tax enforcement processes. However, the longer-term impacts on entrepreneurship and diversity in eCommerce still need to be determined under the growing scale and complexity of these tax intermediary regimes imposed on marketplaces.

III. Liability Risks for eCommerce Vendors

  • Beyond collecting tax, marketplaces are responsible for full remittance to states.
  • If the marketplace fails to pay tax to the state properly, vendors are exposed to liability.
  • State tax audits could find vendors owe “uncollected” portions plus penalties.
  • Even if not informed of a lapse in the marketplace facilitator’s compliance.
  • Example: WA law policy holds vendors liable if the facilitator fails to file/pay
  • Significant risk for vendors who rely entirely on marketplace collection.

This introduces another problematic dimension around marketplace facilitator laws – sellers depending on these large platforms for tax compliance may get saddled with unexpected debts and penalties through no direct fault or awareness. It represents hidden liability risks that small online businesses likely cannot absorb or fight against.

IV. New Sales Tax Collection Requirements

Marketplace facilitator laws designate large eCommerce platforms like Amazon and eBay as sales tax “collectors.” This means they take on key responsibilities that previously fell onto individual third-party sellers using their services:

  • Calculating Appropriate Sales Tax Rates – Platforms must have systems to determine correct combined state and local sales tax rates across tens of thousands of distinct tax jurisdictions at the transaction location.
  • Collecting Tax from Buyers – Marketplaces must charge the buyer calculated sales tax and payment for seller products and platform fees at checkout.
  • Filing Periodic Sales Tax Returns – Marketplaces assume the administrative workload of aggregating tax amounts, filing complex periodic returns, and remitting collections to state revenue departments. This also includes keeping exhaustive transaction records for tax reporting and potential audits.
  • Remitting Tax Payments – At filing intervals (e.g. monthly, quarterly), marketplaces must pay applicable tax authorities the full amounts collected from buyers for all facilitated sales transactions.

For significant eCommerce platforms, this represents an entirely new administrative function previously done by individual sellers. It requires a large IT infrastructure, dedicated staff, and regulatory compliance systems built out for tax purposes alone. The costs involved eat into marketplace profits and resources that could otherwise improve seller tools and customer experience.

V. Loss of Discount Benefits for Small Sellers

Previously, individual sellers could register with tax authorities and obtain valuable discounts on the sales tax they needed to remit. These discounts served to ease the compliance burden for small business owners, who need more sophisticated teams to handle complex regulatory filings.

For example, many states offer vendor discounts between 1-5% of the total sales tax owed. This provides crucial savings for sellers operating on thin profit margins. Some states also set discount eligibility thresholds tailored to small businesses, such as taxable sales under $100,000 per year.

However, sellers can no longer access discounts with marketplace facilitator laws now designating the platform as the tax filing and collecting entity. Instead, returns get submitted under the marketplace’s account at total liability rates.

While percentages seem small, losing long-available discounts adds yet another cost squeeze onto small tech-powered sellers and merchants striving for growth in the modern economy. It also represents an extra tax levied on top of the newly imposed tax administration obligations that marketplaces must take on down the line.

VI Interplay with Federal Policy Considerations

State marketplace facilitator laws interact with tax policy debates happening at the federal level. This adds more uncertainty around eCommerce taxation trends and obligations.

A decision known as Quill vs. North Dakota limits states’ power to compel remote sellers to collect and remit sales tax. However, multiple efforts aim to expand state authority, especially on online transactions.

Potential federal bills include the Marketplace Fairness Act, allowing for a single unified sales tax audit across state lines. While simplifying compliance, it could burden small sellers using marketplaces if discounts or exemptions must be adequately accounted for.

There are also questions about proposed federal thresholds for tax obligations. Legislation like the Online Sales Simplicity and Small Business Relief Act sought to exempt small sellers under $10 million in U.S. remote sales from most compliance requirements. But that does not necessarily prevent or discourage states from imposing tax administration obligations onto hosting marketplaces as a more accessible alternative under facilitator laws.

In essence, federal and state policy goals often conflict around eCommerce taxation. With states incentivized to maximize tax revenue, the scale could tip towards aggressive marketplace facilitator collection at the expense of entrepreneurs, small retailers, and innovation.

VII. Calls for Reform

Considering the issues created by marketplace facilitator laws, online platforms, and third-party sellers have urged updated rules that allow for proper seller discounts, reasonable tax thresholds, and simplified compliance regimes.

Several eCommerce groups have published policy papers and testified in state hearings advocating for reforms. Suggested positions include:

  • Applying seller discount rates to marketplace-facilitated transactions so small businesses can maintain a compliance cost advantage. This encourages entrepreneurship.
  • Implementing a cap on the number of transactions or gross sales value subject to mandatory marketplace facilitation annually per vendor. This reduces administrative overhead on marketplaces.
  • Allowing simplified single sales tax audits extends to the marketplace entity and underlying individual sellers participating on the platform. This improves transparency.
  • Updating reporting thresholds so only sellers meeting a high gross annual sales threshold must have their taxes handled directly by the marketplace facilitator. This frees up resources.
  • Creating uniform definitions, procedures, and deadlines for marketplace facilitators to remit taxes across multiple states. This reduces complexity and cost burdens.

While political challenges remain, a combination of focused refinements could help balance state revenue needs with reducing undue burdens on marketplaces and small tech-enabled sellers that enable eCommerce innovation and opportunities.

VII. Outlook for Marketplace Facilitators and eCommerce Taxation

Looking ahead, more states will likely establish their own marketplace facilitator laws to capitalize on additional sales tax revenues. The trend has accelerated in recent years, even with calls for restraint from industry groups.

With sophisticated calculation and remittance capabilities, major eCommerce marketplaces make for convenient tax collectors on behalf of states. However, significant questions and burdens remain around consistency, liability, discounts, and exemptions impacting platforms and sellers.

On the regulatory side, states still need to coordinate implementation closely. There are variances in tax jurisdiction definitions, filing schedules, discount eligibility, and vendor liability rules across different marketplace facilitator laws. This requires costly localization and poses legal risks even for diligent companies seeking to comply. Some states also prohibit remitting taxes collected from buyers back to impacted sellers, further squeezing margins.

On the congressional side, bills keep arising to expand and restrain state power regarding internet sales tax collection. However, no consensus position or overarching standards are set federally for how marketplace facilitators should operate. The patchwork of state facilitator laws seems poised to grow more complex over time.

Ultimately, marketplaces and sellers will continue adapting to incremental policy and technology changes around sales tax automation. But whether future regime nuances account properly for impacts on small businesses and eCommerce innovation remains highly uncertain. The push for state revenue may supersede equitable concerns.

IX. Legal Foundations and State Law Precedents

The push for marketplace facilitator regulations follows seminal case law establishing broader powers for states to tax interstate commerce, including the Supreme Court’s landmark 2018 decision upholding South Dakota v. Wayfair Inc. This overturned the longstanding physical presence requirement outlined in Quill Corp v. North Dakota (1992).

The Wayfair ruling opened the floodgates for states to tax remote sellers and online transactions. Bolstered further by the IRS opting not to require additional 1099-K reporting solely based on marketplace facilitation roles, states expedited laws designating platforms as tax collectors:

Illinois: Illinois SB-1591 (2021) requires marketplace facilitators to collect and remit sales tax on behalf of third-party seller transactions if annual sales exceed $100,000. No allowances are outlined regarding small seller discounts.

New York: New York SB-8091 requires facilitators to collect tax when cumulative gross payments to sellers exceed $500,000 and handle at least 100 individual sales transactions. Qualified vendors could still receive penalty waivers.

Texas: Texas HB-1905 (2021) follows federal 1099-K threshold changes. Facilitators must calculate, report, collect, and remit applicable sales taxes on covered marketplace transactions.

California: California SB-92 (2021) compels facilitator collection where cumulative sales exceed $500,000. Implementation delays and quarterly remittances provide some administrative relief.

These examples exhibit state efforts to exercise tax authority after Wayfair, with significant liability and administrative shifts now applied to major eCommerce marketplaces under expanding facilitator laws.

About Ampersand

Ampersand is a premier brand provider of middle-market e-commerce. Retailers’ sales tax compliance and consulting services. The Ampersand The management team has unique and complementary skills and over 100 years of combined experience in tax and the e-commerce industry. We provide our clients with a low-cost, non-invasive solution to their growing sales tax Compliance and consulting needs. Aqueduct, a product of Ampersand, is a leading AI sales tax technology company, revolutionizing the sales tax.
Process for businesses. Our experienced team of tax professionals and Technologists have created an accurate, efficient, and user-friendly solution. Our technology utilizes machine learning algorithms and big data analysis to Provide real-time sales tax calculations and compliance information. At
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Legal Disclaimer

The information contained in this article does not constitute legal or tax advice and is provided for general informational and educational purposes only. This content should not be considered complete or up to date for making decisions related to marketplace facilitator obligations or eCommerce tax compliance.

The article is not intended to provide, and should not be relied upon for, tax, accounting, legal, or regulatory compliance advice. You should consult a qualified tax advisor or attorney in your jurisdiction for advice about the rules, regulations, and laws that apply to your business.

The publisher and author make no representations, warranties, or assurances as to the information’s accuracy, timeliness, or completeness. Any reliance placed on such information is strictly at your own risk. The publisher and author will not be liable for any losses or damages in connection with the use of this article.State and local tax laws may change frequently, so consult qualified local advisors regarding your jurisdiction’s proper procedures and requirements before undertaking any tax collection, remittance, or filing activities as a marketplace facilitator, eCommerce seller, or online retail business. Conduct due diligence to ensure your compliance obligations are appropriately fulfilled based on current rules and regulations applicable to internet transactions, sales tax calculations, and marketplace relationships in the relevant taxing locations.

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