The New York State Department of Taxation and Finance has issued an advisory opinion finding that an online marketplace with nexus in New York (NY) was a vendor with respect to third-party sales it facilitated on its platform, and the marketplace and its third-party sellers were jointly liable for the collection of sales tax.
The online marketplace listed, among other things, software, games, and apps offered for sale by third-party sellers. The third-party sellers set the price, and when a sale took place the marketplace processed the payment using its own payment infrastructure, remitted the payment (less marketplace fees) to the third-party seller, and electronically delivered the software item to the purchaser.
In its analysis the Department points out that under §1101(b)(8)(ii)(A) “when in the opinion of the commissioner it is necessary for the efficient administration of this article to treat any salesman, representative, peddler or canvasser as the agent of the vendor, distributor, supervisor or employer . . . for whom he solicits business, the commissioner may, in his discretion, treat such agent as the vendor jointly responsible with his principal, distributor, supervisor or employer for the collection and payment over of the tax.” This provision allows the Department to treat the marketplace as a co-vendor when it performs key acts in facilitating taxable sales for vendors on its platform. Assuming that at least some of the third-party sellers meet the definition of “vendor” in §1101(b)(8), both the marketplace and the third-party sellers in question would be jointly responsible for sales tax collection on their sales.
The definition of “vendor” includes, among other things, sellers with physical presence in NY making sales of tangible personal property and services, sellers with certain affiliates and click-through arrangements, and remote sellers exceeding the $300,000 and 100 transactions economic nexus threshold. However, remote sellers whose only connection with NY is the use of fulfilment center services provided by unrelated persons or storage of tangible personal property on the premises of an unrelated persons don’t meet the definition of “vendor” (unless they exceed the economic nexus threshold or qualify as vendors under another provision).
The Department reasons that sales tax collection by the marketplace would result in reducing the administrative burden on third-party sellers making sales only through marketplace platforms, and would improve the efficiency of sales tax administration, since the marketplace is in a better position than the third-party seller to collect sales tax.
The opinion further states that the third-party sellers would be relieved of their duty to collect sales tax if the marketplace was collecting (however, unfortunately the opinion doesn’t specify who has the primary responsibility for collection). As a vendor, the marketplace would also be entitled to relief from liability when it properly accepts an exemption certificate in good faith, and such relief from liability would extend to the third party seller as well (unless the third-party seller knew that the purchaser was not entitled to the exemption). The marketplace would also be entitled to seek refund or credit of over-collected sales tax, provided that the tax is refunded to the purchasers.
It should be noted that the advisory opinions issued by tax administration agencies (such as the one in this case) are not as authoritative as a tax law or regulation and are binding on the tax agency only with respect to the person to whom the opinion was issued. However, advisory opinions give us insight into the tax agency’s current policies and interpretation of the law with regard to the issues in question.
It should also be noted that the New York State Assembly is currently considering bill A03347, which would legislatively impose a sales tax collection requirement on marketplace providers.
If you have questions or comments on the issues discussed in this post, you can reach out to me at Antoaneta@antoanetaarchercpa.com.
Disclaimer
This post is for general discussion purposes only and does not constitute tax or legal advice. If you need help with a sales tax issue please contact us so that we can assist you based on your specific facts, circumstances, and time periods involved. I am not an attorney and do not give legal advice. For legal questions please refer to an attorney specializing in sales tax matters.