Posted on 02/20/2019 at 11:15 AM by Cody Edwards
State tax practitioners and multistate businesses, I’ve a feeling we’re not in Kansas anymore. Rather, with respect to sales tax, we’re in the Wild West. It is not news that states are imposing a whole host of new laws to try to capture sales tax from the digital economy. One of the areas of sales tax expansion is states’ imposition of sales tax collection responsibility on “marketplace facilitators.”
Typically, marketplace facilitator laws require marketplace facilitators to collect and remit sales tax on behalf of marketplace sellers selling on the marketplace if the marketplace facilitator facilitates sales that exceed a certain threshold (e.g., $100,000 in sales or 200 separate transactions). The typical marketplace transaction is Amazon or Uber being the marketplace facilitator, the online platform being the marketplace, and the retailer selling on the marketplace being the marketplace seller.
Not one to miss out on sources of state tax revenue, effective January 1, 2019, Iowa requires marketplace facilitators to collect and remit sales tax on marketplace sales. Iowa’s marketplace facilitator law does impose a collection responsibility in the typical arrangement explained above. However, Iowa’s marketplace facilitator law, through its definition of “marketplace facilitator”, is written in such a way that businesses that do not fall within the typical arrangement may have sales tax collection and remittance responsibility.
Iowa, via Iowa Code § 423.14A, takes a two-prong approach to defining “marketplace facilitator.” A business satisfying both prongs is considered a marketplace facilitator and must collect and remit sales tax on marketplace sellers’ sales.
The first prong lists nine activities that, assuming the second prong is satisfied, if performed directly or indirectly by a business will bring it within the definition of “marketplace facilitator.” Activities listed in the first prong relate to using a platform (the “marketplace”) to make a sale on behalf of a marketplace seller or offering fulfillment services to a marketplace seller. See Iowa Code §§ 423.14A(1)(b)(1)(a)(iv), (vi). The obvious target here are online platforms that connect buyers and sellers through online platforms (e.g., Amazon).
However, the first prong also states that a marketplace facilitator may be any business that “advertises [goods and services] for sale by a marketplace seller in a marketplace owned, operated, or controlled” by the business or “[f]acilitates the sale of a marketplace seller’s product through a marketplace by transmitting or otherwise communicating an offer or acceptance of a retail sale . . . in a forum including a shop, store, booth, catalog, internet site, or similar forum.” Iowa Code §§ 423.14A(1)(b)(1)(a)(i), (ii). (emphasis added). The Iowa Department of Revenue’s proposed administrative rules https://www.legis.iowa.gov/docs/aco/arc/4292C.pdf) define “marketplace” to include a “store, booth,
Internet website, catalog, television or radio broadcast, or a dedicated sales software application.”
As written, it is clear that marketplace facilitators are not limited to those entities that are selling through online platforms. It is not clear, however, how far the marketplace facilitator law reaches. It is highly likely that, assuming the second prong is satisfied, auction houses, consignment shops, and television and radio stations are marketplace facilitators.
The second prong lists five activities that, assuming the first prong is satisfied, if performed directly or indirectly by a business will bring it within the definition of “marketplace facilitator.” The second prong lists the activities of collecting of the sales price and processing payment, which, again, has obvious targets. Iowa Code § 423.14A(1)(b)(1)(b)(i); (ii).
However, as with the first prong, the second prong lists a less obvious activity: collecting a fee for “inserting or making available” goods or services for sale on a marketplace or “facilitation of a retail sale” of goods and service. Iowa Code § 423.14A(1)(b)(1)(b)(iii). It is unclear what is meant by “facilitation of a retail sale.”
Conspicuously absent from the statute or administrative rules is the requirement that the fee for inserting or making available goods or services or facilitating a retail sale must be related to a particular sale. Nor is there a requirement that the marketplace facilitator know the details of the sale. Nonetheless, the marketplace facilitator would be required to collect and remit sales tax on the seller’s sale.
As written, the reach of Iowa’s marketplace facilitator law is expansive. The new law applies to online platforms, but also brick and mortar businesses that act as agents on behalf of the actual sellers. Additionally, those business that advertise goods and services for sale on behalf of marketplace sellers and collect a fee for such advertisement satisfy both prongs of the definition of “marketplace facilitator.” This means that television and radio stations may be responsible for collecting sales tax when the businesses that run the advertisements (marketplace sellers) make sales of goods or services. The television or radio station may be responsible for collecting sales tax on the marketplace seller’s sale regardless of whether the station’s fees are based on a specific retail sale and whether the station knows of the details of the retail sale (such as the sales price or location of sale).
It is unclear whether the legislature intended for businesses to be required to collect and remit tax on sales made by other people for which they have no knowledge, but until the legislature changes the law, or we get informal guidance, taxpayers should consider whether their business could be considered a marketplace facilitator.
 Out-of-state marketplace facilitators, without physical presence must collect and remit sales tax on taxable Iowa sales if the Iowa-sourced sales exceed $100,000 or 200 separate transactions. In-state marketplace facilitators must collect and remit sales tax on taxable Iowa sales regardless of the amount of sales or separate transactions.
 There is still a question about whether the casual sale exemption would apply.
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