New Revenue Tax Law Targets Marketplaces

Sales tax calculation, collection, and remittance remain a challenge for ecommerce companies. The 45 states plus Washington D.C. using a retail sales tax are eager to obligate ecommerce merchants on sales made to resident consumers.

To do that, a country has to have the ability to maintain a vendor has”nexus” with the condition where the client resides. The present nexus standard is for the vendor to have a physical presence within that state.

In the past few decades, however, several states have promulgated regulations and laws which attempt to supersede the physical presence standard and impose an obligation on sellers to collect sales taxes based on the quantity of sales to in-state clients. The potency of the”economic nexus” rules is uncertain. But they’re not the only publication manner developed by countries to impose a set obligation on out-of-state sellers.

The state of Washington, as an example, recently began enforcement of regulations which need marketplaces with a physical presence in Washington (or yearly sales to residents of at least $10,000) to collect on behalf of third party sellers who use the market’s platform.

In the past few decades, however, several states have promulgated regulations and laws which attempt to supersede the physical presence standard…

Marketplaces in Washington

The new state of Washington law functions as follows.

A”marketplace facilitator” contracts with vendors to facilitate sales of their goods. The new rules aren’t ecommerce specific, but they concentrate on sales made via the net.

The rules define”facilitation of earnings” by a market as directly or indirectly transmitting or communicating an offer or acceptance between the purchaser and seller; owning or operating the infrastructure (physical or electronic ) or technology that brings sellers and buyers together; providing a digital money that buyers can use to buy products from the vendor; or participating in software development or research and development activities regarding the vendor’s products.

A market facilitator is obligated to abide by the new rules when it conducts any of the following services for the vendor: payment processing, storage or fulfillment, listing products available, setting prices, branding earnings as those of the market, order taking, advertising or marketing, providing customer support, or accepting or helping with returns or exchanges.

Washington left few stones unturned in defining a market facilitator. Surely Amazon, which is located in Washington, is a market facilitator. But are Ebay, Walmart, and other marketplaces that have a nexus with Washington — warehouses, offices, employees.

The wide scope of the principles leaves very little chance that online selling platforms may exclude themselves. Minnesota has passed similar rules but prolonged the effective date, and other nations are looking at this sort of rule too.

The Washington rules are effective as of January 1, 2018. They lay out a choice for market facilitators using a physical presence in Washington: collect sales tax on behalf of third party sellers or provide notice to Washington clients of their possible use tax obligations. (A use tax is a mirror image of a sales tax; a use tax is due on taxable sales when no sales tax is collected.)

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Impact on Retailers

If your organization is a retail seller with a physical presence in Washington, the new rules do not provide any cover in the basic sales tax nexus precedent: retail vendors with bodily presence in Washington are bound to register with the nation for a vendor and compute, collect, and remit sales taxes. If a retailer is now remitting sales taxes in Washington for sales made via marketplaces, the taxes are collected by these marketplaces are deducted from the seller’s sales tax obligation.

If your organization lacks a physical presence in Washington (a”distant seller”) but sells through online marketplaces with Washington existence, the new rules will immediately affect your sales — your clients will begin paying tax or they will receive notice of potential use tax obligations.

The crux of the new rules requires marketplace facilitators using a physical presence in the country to collect sales taxes due on behalf of remote sellers or elect to offer notice to the Washington clients of their use tax obligation. If a market provider elects to notify clients of the use tax obligation rather than collecting sales tax, the market is also obligated to report taxable earnings due from Washington residents annually into the state Department of Revenue.

If your organization lacks a physical presence in Washington (a”distant seller”) but sells through online marketplaces with Washington existence, the new rules will immediately affect your sales…

The penalties for non-compliance together with the notice and reporting rules are stiff: penalties can reach triple digits quickly and collect rapidly. Additionally, the market must provide conspicuous general note on its site and on individual sale records using tax is due, or face another tier of penalties.

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The alternative for market providers is to compute, collect, and remit Washington sales tax on behalf of vendors who lack Washington nexus. Given the unique and elaborate notice and reporting requirements, it’s not surprising some Washington market facilitators have already started collection of retail sales taxes on behalf of remote sellers. The market facilitator must report and remit the taxes they collect on a remote vendor’s behalf.

The new Washington regulations also provide unique rules and duties for market facilitators who lack a physical presence in Washington, and for referrers with or without a physical presence in Washington (referrers connect buyers with sellers but don’t facilitate earnings ) and the sellers who use them.

Presumably “referrers” describe affiliate marketing. However, the text is vague. There’s very little guidance beyond being all-encompassing to include, apparently, any talking thing.

Hopefully, this article not only sheds some light on the new Washington principles but also identifies a potential new wrinkle in ecommerce sales tax compliance which may see wider adoption by other nations. Apart from clients paying tax or receiving notice, the rules may lead to some obligations and reporting requirements for ecommerce merchants.

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