Multistate Tax Group Mulls Marketplace Obligations

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By Tripp Baltz

Online marketplace entities like Amazon Inc. and eBay Inc.—not individual sellers per se—should meet “transactional notice” obligations if they facilitate sales in states that impose such requirements on certain remote sellers, a special work group of the Multistate Tax Commission said.

The idea of putting the “notice” obligation on marketplace sellers such as eBay, Inc. and Newegg Marketplace was supported by members of the Use Tax Information Reporting work group, a project of the MTC’s Uniformity Committee, which met May 24. The work group is considering possible changes to an existing Model Sales and Use Tax Notice and Reporting Statute that hasn’t yet been adopted by the commission.

“Any marketplace that fulfills the transaction or completes the transaction, the model should put the reporting transaction on them,” said Phil Horwitz, chair of the work group and tax policy director in the Colorado Department of Revenue, indicating the direction the work group is headed. “It’s an open question as to whether we completely relieve the seller, or whether that relief is conditioned on the marketplace actually fulfilling the transaction notice obligation.”

A growing number of states are mulling plans to tax marketplace providers to capture sales made through third parties on their platforms—just this year, at least five states have proposed measures to impose collection obligations on marketplace providers. Minnesota became the first to pass such a plan this week (see related story, this issue).

Three Requirements

The MTC model statute is designed to present a template for other states to follow and is patterned after Colorado’s 2010 reporting and notice law. Such laws take aim at out-of-state sellers that don’t collect and remit sales and use taxes, generally imposing on them requirements to: (1) let buyers know they could owe use tax on a purchase, (2) provide buyers with an annual report of their purchases, and (3) report certain information about sales—including amounts and shipping and billing addresses of buyers—to the state.

That third requirement is perhaps the most controversial aspect of Colorado’s law, which survived a long-fought legal challenge by the Data & Marketing Association (formerly the Direct Marketing Association) when the U.S. Court of Appeals for the Tenth Circuit ruled in February 2016 the law didn’t violate the interstate commerce clause. The U.S. Supreme Court in December denied a petition to review the appellate decision.

The requirement to report data to the state was also targeted by a bill (S.B. 238) defeated during the 2017 regular session of the Colorado General Assembly. NetChoice and other advocates of e-commerce companies argue the requirement violates consumer privacy.

Marketplace Obligations

Marketplaces are e-commerce platforms that in addition to selling goods directly, allow third-party vendors to sell new and used products. Some states refer to such entities as “sellers,” others as “platforms” and “providers,” but the various names have not helped to clarify the treatment of such companies under reporting and notice regimes, according to the work group discussion.

Group members suggested that “facilitating” a sale—especially collecting and processing the payment for it—could be the trigger that puts the transaction notice obligation on a marketplace.

The group also deliberated on whether the annual notice and reporting requirements fall to the marketplace or to the actual seller.

“Tentatively, we seem to be suggesting the marketplace has the annual obligation if they are the shipper of the goods,” Hortwitz said. “What we do in other situations is up in the air.”

The direction in which the work group is headed demonstrates that the MTC, “as usual,” is “blithely unaware of the consequences of their legislative aspirations to expand state tax powers,” Steve DelBianco, executive director of NetChoice, told Bloomberg BNA May 25.

“It would be impossible for a marketplace or payment facilitator to know the taxability of all goods and services offered by all their third-party sellers, when purchased by a given customer in a certain state at a specific time,” he said. “How, for example, could Etsy know whether a scarf made by a small business in South Dakota is taxable when sold to a customer in Connecticut?”

Multiple Channels

On the annual reporting mandates, the work group is forgetting “that those who sell on a marketplace also sell on multiple channels, like their own website, a store, mail-order, and other marketplaces,” he said. “Consumers and state tax collectors would receive duplicate data, since both the seller and their marketplaces would be obligated to report the same transaction.”

The work group members said they want to avoid having multiple reports submitted by different entities about the same transactions.

The work group is scheduled to meet weekly via teleconference through June. Meetings are open to the public.

Horwitz said in the next one or two weeks the Colorado Department of Revenue will publish regulations implementing its law, which is set to take effect July 1.

To contact the reporter on this story: Tripp Baltz in Denver at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

More information on the MTC work group is at

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