Remote Seller or Marketplace Facilitator - What's the Difference?

Are you ready for more complexity in the world of sales tax? I've said it before, and I'll say it again. Sales tax used to be a much simpler topic. Now there are so many questions you have to ask.

In a previous post we talked about how physical and economic nexus is formed in the states. Another issue you need to consider now is the difference between being a remote seller and being a marketplace facilitator. There is more than one type of seller, particularly when talking about remote/out-of-state sales.

Sellers have to ask is if they are a remote (marketplace) seller or are they a marketplace facilitator. This can make a difference in how they collect and remit sales tax in different states. Again, there are some general rules, but the specifics can vary from state to state. Bear in mind that this information is given as general guidance and not legal advice. For specifics applicable to your business (or your clients' businesses) across the various states, contact that state directly or consult with your CPA/attorney.

So who are you, you may ask?

Remote (Marketplace) Seller

Remote (marketplace) sellers are generally sellers that do not have a physical presence in a state but who sells products or services for delivery into that state. So if my physical location is in Texas and I sell products from my website for delivery into other states, then I am a remote (marketplace) seller.

Marketplace Facilitator/Provider

A marketplace facilitator/provider is generally a business that owns, operates, or controls either a physical or electronic retail location and assists third-party sellers with selling their products. They generally either directly or indirectly, through a contract, agreement, or other arrangement with the third party, collect payments from purchasers or send the payments to the seller. Specific state definitions may vary from this, but this is essentially how the process works.

Keep in mind that marketplace facilitators/providers may also be remote sellers themselves. It can be confusing, but your Certified Service Provider (CSP) can assist you in making these determinations.

For example, I have a website and have invited other remote sellers to list their products on my aggregate site. As such, I have facilitated the sale of their products into various states. This makes me a marketplace facilitator. Many large retailers are marketplace facilitators because they provide just such a function.

Streamlined Sales Tax Agreement

As previously noted, the Streamlined Sales Tax Project compiles information regarding how sales tax is collected and remitted within states that have signed off on the Streamlined Sales and Use Tax Agreement. Below you will find information on the several states that are members of this group. This includes if the marketplace facilitator is required to collect and remit sales tax, the threshold where the requirement goes into effect, if they are required to identify sales made on behalf of sellers separate from their own direct sales, if the state allows or requires a marketplace facilitator to file a separate return for third-party sales it facilitates, and if the marketplace facilitator is required to provide certification for collection and remittance of tax on behalf of the seller.

In this article we will consider how this works for Alaska through Nevada. In part two of this article, we will discuss how this works for the states of New Jersey through Wyoming.

Alaska

Alaska requires marketplace facilitators to collect and remit sales tax when statewide gross remote sales meet or exceed $100,000.00 or 200 transactions in the current or previous calendar year. They are not required to identify sales made on behalf of sellers separately. They are allowed to file a separate tax return for third-party sales they facilitate. They are not required to provide certification that they will collect and remit sales tax for sellers.

Arkansas

Arkansas requires marketplace facilitators to collect and remit sales tax when statewide gross remote sales meet or exceed 100,000 dollars or 200 transactions in the current or previous calendar year. They are not required to identify sales made on behalf of sellers separately. They are allowed to file a separate return for third-party sales they facilitate. They are not required to provide certification that they will collect and remit sales tax for sellers.

Georgia

Georgia requires marketplace facilitators to collect and remit sales tax when the total value of sales sourced to Georgia across all sellers and the marketplace facilitator itself is equal to or greater than 100,000 dollars in the current or previous calendar year. They are required to identify sales made on behalf of sellers separately. They are also required to file a separate return for third-party sales they facilitate. They are not required to provide certification that they will collect and remit sales tax for sellers.

Indiana

In Indiana, as of July 2019, marketplace facilitators are required to collect and remit sales tax when they reach $100,000.00 or 200 or more separate transactions during a calendar year. They are not required to identify sales made on behalf of remote sellers separately from its own sales on its return unless a specific request is made from the taxing agency. However, for county innkeepers or food and beverage taxes, a marketplace facilitator must include business names and amounts collected by the marketplace facilitator on behalf of each business.

Iowa    

In Iowa, they keep the rules pretty simple. Marketplace facilitators are required to collect and remit sales tax when they reach $100,000.00 in sales for themselves or on behalf of another seller during the previous or current calendar year. Marketplace facilitators are not required to identify sales made on behalf of remote sellers separately from their own sales on their return. Iowa allows, but does not require marketplace facilitators to file a separate return for third party sales they facilitate. Marketplace facilitators are not required to provide any type o certification that they will collect and remit sales tax for remote sellers.

Kentucky

The state of Kentucky requires marketplace facilitators to collect and remit sales tax as of July 2019 with a threshold of $100,000.00 in gross sales or 200 or more transactions into the state during the previous or current calendar year. Marketplace facilitators are not require to identify sales made for remote sellers; the remote seller is required to file a separate return on its own. They also require marketplace facilitators to file a separate return for sales facilitated for remote sellers.

Michigan

The state of Michigan generally requires marketplace facilitators to collect and remit sales tax with a threshold of $100,000.00 or 200 or more separate transactions. They do not require marketplace facilitators to collect and remit tax for use taxes imposed on telecommunication services, or if the marketplace facilitator facilitates a sale of hotel rooms/accommodations if the third party selling these is itself registered for sales or use tax.

Minnesota

Marketplace facilitators are required to collect and remit sales tax presuming the marketplace facilitator exceeds the small seller exception, and there is not an agreement between the parties that the seller registers to collect sales tax collects the sales tax. The threshold is more than $100,000.00 or 200 retail transactions.

Nebraska

Nebraska requires marketplace facilitators to collect and remit sales tax if transactions exceed $100,000.00 or 200 separate transactions provided the marketplace facilitator is not otherwise engaged in business in Nebraska. They do not require marketplace facilitators to identify sales made on behalf of sellers separately on their own return.

Nevada

Nevada is a little more complicated than other states. Marketplace facilitators are not required to collect and remit sales tax if they have a written agreement that states the seller assumes responsibility for collection and remittance for sales made through the marketplace facilitator and the seller is registered with the Department of Revenue to collect sales and use tax on sales made by the remote seller. The threshold is $100,000.00 in sales or 200 transactions. Note that the Nevada sales tax return does not have a separate line item to identify sales made on behalf of marketplace sellers. They require marketplace facilitators to file a separate return for any third party sales it facilitates.

Given the complexity of collecting and remitting sales tax, it is recommended that both retail and service businesses subject to state sales tax employ a Certified Service Provider to verify that their tax compliance is done right.

As always, tax compliance done right…important to know the facts.