Definition of Marketplace Facilitator/Provider
At the end of December, the Uniformity Committee of the re-convened Wayfair Implementation and Marketplace Facilitator Work Group (“Work Group”), and we released the annual white paper (“2019 White Paper”). It addresses issues arising from enactment of sales/use tax laws implementing economic nexus and requiring marketplace facilitators/providers to collect sales/use tax. The paper includes the Work Group’s findings concerning the Committee’s prioritized list of issues and is intended to provide guidance to state legislatures and tax agencies considering such laws or amendments during their 2020 legislative sessions. Marketplace facilitators and those millions of online sellers selling on these platforms take note. The 2019 White Paper follows up and supersedes (to the extent inconsistent with) the White Paper dated November 20, 2018 (“2018 White Paper) (www.mtc.gov).
This blog is the second in a series in which I review and comment on a number of the issues raised in the white paper and will cover the question of a definition of a marketplace facilitator/provider.
Issue: Which statutory category should definitions of “marketplace facilitator/provider” fall into — narrow or broad?
The 2018 White Paper (pp. 6-10) suggested both broad and narrow versions of the definition of the term “marketplace facilitator/provider.”1 The narrow definition requires direct or indirect processing or collection of the customer’s payment by the marketplace facilitator/provider. The broad definition may not. Nineteen states plus the District of Columbia have adopted narrow definitions. Fifteen states have adopted broad definitions. Business participants in the Work Group expressed a strong preference for the narrow definition, because the broad definition leads to more uncertainty. Also, a business falling within the broad definition that does not directly or indirectly process or collect the payment cannot practically comply with the tax collection requirement.
My view is that the narrow definition is more likely to be adopted by the remaining states because it places a clear stake in the ground as to who the responsible party is.
Some business participants have advocated for adoption of exclusions from the definition for certain industries, such as payment processors, advertisers, delivery services, travel and accommodation services, car rentals, etc. Some of the states have included exclusions in their definitions of “marketplace facilitator/provider.” The draft working model approved on November 22, 2019 by the National Conference of State Legislatures (NCSL) State and Local Tax (SALT) Task Force (“NCSL working draft model”), to be reviewed by its Executive Committee in early 2020, suggests a narrow definition and includes certain exclusions. The exclusions typically address situations where the type of business falling within the definition lacks access to the sales transaction information and the payment so cannot practically comply, or the industry already has an established tax compliance model in place that would otherwise be disrupted.