What does Marketplace Fairness legislation mean for your WA business?

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While there is a new and exciting tax reform happening at a federal level, there are also some exciting things happening in the state of Washington. 


Beginning January 1, 2018, marketplace facilitators with a physical presence in Washington or $10,000 or more in retail sales sourced to Washington, including sales of their own products and sales of products made on behalf of marketplace sellers, must either:
•    Collect and pay sales tax on sales to Washington purchases
•    Follow the use tax notice and reporting requirements


Below are the detailed requirements put forth by the Washington Department of Revenue, but before you get into the details, here is the ‘Reader’s Digest’ version. 


Previously, if you were selling product through an online marketplace or selling food through a food delivery service in the state of Washington, it was up to you to collect sales tax from the end customer and remit the sales tax to the Department of Revenue. The times they are a-changin. 


Now, if you are located in the state of Washington and selling through what is deemed to be a marketplace facilitator, including Amazon, Etsy, UberEats and GrubHub to name a few, they are responsible for the collection of sales tax…. but you still must do your part. 


You will report your gross sales to consumers under the Retailing Business and Occupation (B&O) tax classification.  You remain responsible for the B&O tax.  You will report the same gross sales under the Retail Sales tax classification and, for the sales made through your market facilitator(s), take a deduction under Other: Sales tax remitted by (Name of your marketplace facilitator).

It is important to note that eBay, Shopify, Wal-Mart and other online marketplace facilitators will not be remitting sales tax on the seller's behalf. This is because these facilitators don't hold inventory in the state of WA.  

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Begin DOR provided information….


What is a marketplace facilitator?
A marketplace facilitator is a business that does the following three activities (RCW 82.13.010(3)):

1. Facilitates the sale of a marketplace seller’s product through a marketplace for payment. 

2. Engages, directly or indirectly, in any of the following with respect to bringing the buyer and seller together:
•    Transmitting or otherwise communicating the offer or acceptance between the buyer and seller
•    Owning or operating the infrastructure, electronic or physical, or technology that brings buyers and sellers together
•    Providing a virtual currency that buyers can use to purchase products from the seller
•    Software development or research and development activities related to any activities with respect to the seller’s products listed below, if such activities are directly related to a marketplace operated by the person or an affiliated person.


3. Does any of the following activities with respect to the seller's products:
•    Payment processing services
•    Fulfillment or storage services
•    Listing products for sale
•    Setting prices
•    Branding sales as those of the marketplace facilitator
•    Order taking
•    Advertising or promotion
•    Providing customer service or accepting or assisting with returns or exchanges

Who are the big marketplace facilitators? 
•    Amazon
•    eBay
•    Etsy
•    UberEats
•    GrubHub 

What is a marketplace seller?
A marketplace seller is a seller that makes retail sales through any physical or electronic marketplace operated by a marketplace facilitator or directly resulting from a referral by a referrer.

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Option 1: Collecting and remitting sales/use tax


Marketplace facilitators that have a physical presence in Washington must collect and pay sales tax on own sales, and for marketplace sellers with a physical presence. 
Remitting collected sales/use tax
Marketplace facilitators that collect sales tax on third-party sales must pay the sales tax directly to the Department of Revenue. They may not give the collected sales tax to their marketplace sellers.
Marketplace facilitators electing to collect and pay sales/use tax must report all third-party sales separately from their own sales into Washington. Third-party sales must be reported under a separate tax reporting account (branch account) or separate legal entity account. 

Reporting sales made through the marketplace facilitator.
You will report your gross sales to consumers under the Retailing Business and Occupation (B&O) tax classification.  You remain responsible for the B&O tax.  You will report the same gross sales under the Retail Sales tax classification and, for the sales made through your market facilitator(s), take a deduction under Other: Sales tax remitted by (Name of your marketplace facilitator).

 

Option 2: Use tax notice and reporting requirements


If a marketplace facilitator or remote sellers elect not to collect and remit sales tax for sellers (the seller is not physically located in WA), they must provide the following notices/reports:
•    Platform notice
•    Invoice/receipt notice
•    Annual report to purchasers
•    Annual report to DOR

Platform notice
Sellers must post a conspicuous notice on the marketplace (platform, website, catalog, or any other similar medium) that informs Washington purchasers that:

Sales or use tax is due on certain purchases
Washington requires the purchaser to file a use tax return
The notice is required under RCW 82.13.020(2)(a)(i)

Invoice/receipt notice
Sellers must provide a notice at the time of sale prominently displayed on the invoice/order form and on the receipt or similar document provided to the purchaser, whether in paper or electronic form. The notice must include:

•    A statement that neither sales or use tax are being collected or remitted upon the sale
•    A statement that the Washington purchasers may be required to remit sales or use tax directly to the Department of Revenue
•    Instructions for obtaining additional information from the Department of Revenue regarding whether and how to remit the sales or use tax to Department

Annual report to purchasers
Sellers must provide a report no later than February 28, 2019, and each following year to each purchaser for whom the seller was required to provide the invoice/receipt notice. The report must provide:
A statement that the seller did not collect sales or use tax on the purchaser's transactions with the seller, and that they may be required to remit tax directly to the Department of Revenue
A list, by date, generally indicating the type of product purchased or leased during the immediately preceding calendar year by the purchaser from the seller, sourced to Washington, and the price of each product
Instructions for obtaining additional information from the Department regarding whether and how to remit the sales or use tax to the Department
A statement that the seller is required to submit a report to the Department stating the total dollar amount of the purchaser's purchases from the seller
Any additional information that the Department requires
 

Where do the annual notices to consumers go when the purchaser and recipient are in different locations?
Annual notices go to the purchaser of products delivered or sourced to Washington.
 

The following is a sample annual report summary:
During 2018, you purchased items from [COMPANY NAME] that were shipped to Washington. Because we did not collect sales tax on those purchases, Washington law requires us to send you an annual summary of your purchases to help you file a consumer use tax return. If you made taxable purchases and did not pay sales tax, Washington law requires you to file a consumer use tax return and pay any tax due on your taxable purchases.

Washington law also requires us to give the Washington State Department of Revenue an annual summary of your purchases from us. We will not share any details about the items you purchased. The detailed notice below is only provided to you.

Visit dor.wa.gov/consumerusetax for more information and to file a return.

Annual report to Department of Revenue
Sellers must file a report with Department of Revenue no later than February 28th of each year beginning in 2019.
The report must include:
•    The purchaser's name
•    The billing address and, if different, the last known mailing address
•    The shipping address for each product sold or leased to such purchaser for delivery to a location in this state during the immediately preceding calendar year
•    The total dollar amount of all purchases by the purchaser
•    The report must also include an affidavit signed under penalty of perjury from an officer of the seller affirming that the seller made reasonable efforts to comply with the applicable sales and use tax notice and reporting requirements in this section. The affidavit may be filed electronically or by mail.

Except for the affidavit, the report must be filed electronically in a form and manner required by the Department.