The Multistate Tax Commission work group charged with producing Wayfair implementation guidance in time for the 2020 legislative sessions held a fast-paced first meeting August 29 covering four topics regarding online marketplace facilitators and sellers.
The group plans to develop a white paper on the top 12 post-Wayfair implementation issues as ranked by state revenue departments in an informal MTC survey conducted by National Nexus Program Director Richard Cram.
Work group Chair Tommy Hoyt, the Texas comptroller’s assistant director for tax policy, said that for each of the 12 topics, the white paper could discuss issues arising in the states and provide state lawmakers with options by discussing state approaches or provisions that are working.
Cram circulated a 24-page memo on the first four topics, and work group members discussed the statutory definition of a marketplace facilitator and the issue of who is the retailer.
But the topics generating the most buzz had to do with what Cram called thorny issues of liability and audit exposure.
Most state laws require that the marketplace facilitator collect tax and file returns, Cram said. However, many of these laws also contain language saying that if the facilitator can show it failed to collect tax because the seller provided incorrect or insufficient information, then the seller is liable. The same is true regarding audit exposure, meaning the seller can be audited when it has provided erroneous or insufficient information to the facilitator.
“So you’ve kind of got a duality here where both the marketplace facilitator and seller could be liable or subject to audit, depending on who didn’t provide the correct information to whom,” Cram said.
Craig Johnson, executive director of the Streamlined Sales Tax Governing Board, said that sellers are contacting the board saying they are being expected to tell marketplace facilitators what is taxable in each state. Johnson said that if states are going to make sometimes very unsophisticated sellers make the taxability determination, “I think we bring right back into play the words ‘undue burden’ on that marketplace seller,” especially if the facilitator’s liability can be relieved and the seller is then responsible for the tax owed.
“You’re in effect asking that marketplace seller to know all the rules in all the states,” Johnson said.
Richard Dobson, executive director of the Kentucky Department of Revenue’s Office of Sales and Excise Taxes, suggested that states could revise their laws to make marketplace facilitators liable up front. Rather than making states go through multiple levels, they could leave it to the contractual details between the parties as to how the facilitator collects a deficiency from a seller, he said.
Beth Sosidka of AT&T said her company invests an inordinate amount of resources into understanding what it sells and how it is classified — for example, whether it is telecommunications, an information service, an entertainment service, or a digital streaming service. She said AT&T is concerned about “what we view as a giant loophole in the liability laws” under which a marketplace facilitator could, years later, say that a third-party seller didn’t provide it with enough information to provide a good taxing determination.
Sosidka said some states did include language requiring the facilitator to at least make a reasonable attempt to collect that information from the seller. She said it might be helpful for businesses and states to decide what information a seller should provide at the time of the transaction, and to place the responsibility on the facilitator to decide how that product or service should be classified. This would allow sellers to rest assured they don’t have to maintain all of the recordkeeping for every transaction they were not responsible for, she said.
Diane Yetter of the Sales Tax Institute said the variety of categories provided by some marketplace facilitators is extremely limited, making it so the seller can’t give the correct information.
However, Ariel McDowell of Walmart.com offered a counterexample. She said the Walmart Marketplace currently has more than 100 million stock keeping units (SKUs) assigned to products for tracking purpose, whereas the number of SKUs for tracking is significantly less in its physical stores.
Yetter said states need to be very clear what information a seller must provide to a marketplace facilitator — and that there is an important distinction between taxability and classification. What facilitators want from the seller is the classification of the product or service, not the taxability of a product or service by state. With the correct classification, the facilitator’s technology and coding can maintain the taxability rules and rates applicable to it.
Hoyt is requesting comments and concerns on the top 12 items. The work group’s next meeting will be September 19, with weekly meetings starting October 3. Hoyt said that by the October 10 meeting he hopes to focus on how to put a white paper together that will be valuable to the states during the legislative sessions.