Guest post from Avalara | A three-part series on tax issues and compliance | Part Three
New laws have put more pressure on marketplaces than ever before to ensure their 3rd party sellers are tax compliant. This has forced changes in this area which, although mostly helpful for sellers, can mean a change in business process to gain or maintain their marketplace sales. This article looks to discuss some of the changes and the effects they have on merchants.
Marketplaces facilitator laws in the US
Marketplace facilitator laws impose an obligation on the marketplace facilitator to collect and remit sales tax on behalf of its marketplace sellers. These laws are significant because they shift the burden of collection and remittance of sales tax off the seller and onto the platform that facilitates the sale (the marketplace facilitator).
Many of these laws began to appear in 2017, shortly after states realized that while Amazon had started taxing sales of its own products, it wasn’t charging customers sales tax on third-party, or marketplace, sales. Given that more than half of all Amazon transactions occur through its marketplace, a significant portion of sales were going untaxed.
Many marketplace facilitators take the position that they’re not the actual seller — they’re merely an agent providing a platform or channel that facilitates sales — and therefore aren’t responsible for collecting the sales tax; that obligation has historically fallen on the seller.
States, however, don’t want to miss out on potential revenue. To capture it more effectively, more than 20 states have adopted marketplace facilitator laws to ensure they’re not missing out on sales tax revenue as a result of the marketplace channel. Like many facets of sales tax, marketplace facilitator laws vary by state in their application.
Sales tax collection is a pass-through activity and the business is merely the intermediary passing the collected taxes from the purchaser to the tax authority. These laws directly impact those that sell on a marketplace because a portion of the seller’s taxes might be collected and remitted on their behalf in states with marketplace facilitator laws.
It’s critical that a seller confirms how sales tax via the marketplace is handled. The risk exists that neither party collects and remits the required sales tax. Or, if a business doesn’t realize that it wasn't the one that collected the tax and then remits a tax amount they believe they collected, those funds are coming out of their pocket.
Each marketplace interprets these laws differently, so it’s important for marketplace sellers to consult with their tax advisors and work with the marketplace facilitator to understand how the law should be applied.
2021 marketplace changes in the EU
Marketplaces become responsible for VAT collections
The agreement covers making online marketplaces the deemed supplier for VAT purposes, in the following cases for non-EU sellers using their platforms:
- For goods up to a value of €150 sold on their platforms
- For all goods sold on their platform where the seller uses fulfillment centers.
To facilitate this, non-EU sellers would be responsible for the import, and import VAT, and then perform a nil-rated sale to the marketplace where the goods are moved across an EU border. The marketplace would then perform the VAT-rated domestic sale to the customer. Non-EU sellers will be able to use the new One-Stop-Shop (OSS) VAT return to recover import VAT.
To support the implementation of these measures, online platforms will also be expected to keep records of sales of goods or services made by businesses using their platforms.
2021 One-Stop-Shop single EU VAT return
The EU has already agreed to extend the One-Stop-Shop (OSS) single EU VAT return for all sellers (EU and non-EU) of goods to consumers from January 2021.
Like the existing Mini One-Stop Shop (MOSS) for e-services sales to consumers, this will enable EU and non-EU sellers to report all their distance sales through a single return to their national tax authorities. This would end the requirement for multiple EU VAT returns for such e-commerce sellers, ending the need for the distance selling threshold simplification.
The EC has said OSS will include the facility to reclaim import VAT suffered in any other EU state.
How can Avalara help?
Avalara helps businesses of all sizes achieve compliance with transaction taxes, including sales and use, VAT, excise, communications, and other tax types. The company delivers comprehensive, automated, cloud-based solutions designed to be fast, accurate, and easy to use. The Avalara Compliance Cloud® platform helps customers manage complicated and burdensome tax compliance obligations imposed by state, local, and other taxing authorities throughout the world.
Avalara offers more than 700 pre-built connectors into leading accounting, ERP, ecommerce and other business applications, making the integration of tax and compliance solutions easy for customers. Each year, the company processes billions of indirect tax transactions for customers and users, files more than a million tax returns, and manages millions of tax exemption certificates and other compliance documents.
For more information, please contact mark.carpenter@avalara.com.
