Ohio’s marketplace facilitator law will take effect on Sunday, Sept. 1.
The law, which was signed into law on July 23, will require online marketplaces, such as those operated by Amazon.com Inc. and eBay Inc., to collect and remit sales tax on behalf of sellers if they generate $100,000 in Ohio-based revenue or 200 transactions in the state either in the calendar year or the previous 12 months.
With the implementation of Ohio’s marketplace facilitator law, 24 states will have marketplace facilitator laws in effect. Another six (Arizona, California, Colorado, Maine, North Dakota and Utah) will have their laws take effect Oct. 1.
Marketplace facilitator laws are part of a broader effort by states to respond to the U.S. Supreme Court’s June 2018 ruling in the South Dakota v. Wayfair Inc. case that allowed states and local governments to require online retailers to collect sales tax even if they don’t have a physical presence, or nexus, in the state or local tax jurisdiction. The court stated that it was overturning decades of precedent because the South Dakota law is straightforward: The law requires retailers to collect and remit sales tax if they sell more than $100,000 in the state or complete at least 200 transactions with South Dakota residents.
Several states have argued that marketplace facilitator laws further simplify the sales tax and remittance process. But that isn’t necessarily true given the disparities between the states’ laws, says Scott Peterson, vice president of U.S. tax policy and government relations at Avalara, a software-as-a-service sales tax and compliance vendor. For example, the threshold in Alabama is $250,000, while there’s no threshold in Washington, D.C.
“The states don’t get it, they think they’re making things easier,” says Peterson, who worked as a state tax director for South Dakota’s department of revenue and then as executive director of the Streamlined Sales Tax Governing Board before joining Avalara. When states pass marketplace facilitator laws, they think “they’re going from requiring 1 million companies to collect sales tax to one.”
But they’re failing to understand how marketplace facilitator laws create new issues for merchants that sell on several online marketplaces, as well as their own ecommerce sites and apps. The laws require them to constantly monitor which marketplaces are handling and collecting in which states while they also handle their own collection and remittance processes for sales on their sites and apps. The situation gets even more complicated for merchants that also operate their own online marketplace.
“Compliance isn’t easy,” he says, given that marketplace facilitator laws vary from state to state. For example, Wyoming defines a marketplace facilitator as any person who facilitates the sale of tangible personal property, services or admissions for a marketplace seller and collects payment from a consumer and transmits that payment to the seller, regardless of whether that person receives a commission for doing so. And it requires all marketplace facilitators to collect and remit online sales tax on behalf of sellers. Arkansas, Indiana, Kentucky, Virginia and West Virginia, on the other hand, only require facilitators to collect and remit online sales tax on behalf of marketplace sellers once they generate $100,000 or 200 transactions in the state.
There’s a good reason that states are rapidly implementing marketplace facilitator laws: They’re generating significant revenue. New Mexico, for example, expects its law to generate about $43 million this fiscal year.
Read about how retailers are navigating the hodgepodge of state laws and regulations in Internet Retailer’s June article, “How the Supreme Court’s Wayfair decision is changing retail,” the October 2018 cover story “The Supreme Court overturned Quill. Now what?” or listen to an Internet Retailer webinar on the topic here. You can find additional resources and research available here.Favorite