New Jersey Enacts Marketplace Facilitator Sales Tax Collection Requirement
States aren’t just enacting rules establishing nexus for remote sellers, they are establishing nexus rules for marketplace facilitators to collect and remit sales tax on behalf of remote sellers.
By Jess Johannesen, SALT Manager
Since the United State Supreme Court decision in South Dakota v. Wayfair, there has been a flurry of state activity enacting sales tax economic nexus rules in nearly 30 states pertaining to sales tax collection and remittance by remote sellers. 
In Aprio’s November/December 2017 SALT Newsletter, we explained a new approach being taken by a few states: requiring “marketplace providers” or “marketplace facilitators” to collect and remit sales tax on sales by third-party “marketplace sellers.” With the nexus flood gates opened by the Wayfair decision, an increasing number of states are looking to marketplace facilitators with economic nexus to collect and remit sales/use tax on sales made to in-state consumers, even where the actual remote seller has not met the economic nexus thresholds. On Oct. 4, 2018, New Jersey Governor Phil Murphy signed legislation as part of a broader corporate business tax reform which added New Jersey to the growing list of states enacting rules requiring marketplace facilitators to collect and remit the states sales/use tax.
In general, marketplace sales involve two “selling” parties in each sale: the marketplace seller and the marketplace facilitator (or provider). Think of the marketplace facilitator as your Amazon, eBay, or Etsy e-marketplaces, and the marketplace seller as the actual online seller that is using the marketplace facilitator online platform as opposed to selling directly on its own website (although some marketplace sellers do that as well). The Wayfair decision now gives states the ability to require the marketplace seller itself to register for sales/use tax, typically based on exceeding a certain sales revenue or transaction volume threshold. In addition, however, states may view the Wayfair decision as also providing the foundation for requiring marketplace facilitators to collect and remit sales tax on the marketplace sellers’ sales to customers in the state.
For example, effective Nov. 1, 2018, New Jersey now requires “marketplace facilitators” to collect sales tax on taxable sales that they facilitate to New Jersey purchasers. New Jersey defines a “marketplace facilitator” as any person that “facilitates a retail sale” of tangible personal property, specified digital products, or taxable services by satisfying at least one activity detailed in each of two broad lists of activities. The first list generally includes (but is not limited to) advertising activities, marketplace infrastructure, fulfillment or storage services, price setting, customer service functions, or branding by the marketplace on behalf of the seller. The second list generally includes (but is not limited to) retail sales collection, payment processing, or charging of selling or referral fees.
It is worth noting that the legislation, while effective on Nov. 1, 2018, authorizes the New Jersey Division of Taxation to suspend these requirements for a period of up to 180 days in order to ensure accurate and timely collection of taxes. In addition, as the legislation is currently written, there does not appear to be any economic nexus threshold tied to the marketplace facilitator’s compliance requirements. However, it is expected that the Division of Taxation will be issuing detailed guidance explaining how to apply these new marketplace facilitator requirements, including any economic nexus thresholds. Other states that have similar rules for marketplace facilitators have economic nexus thresholds that must be met before the marketplace facilitator would be subject to any sales/use tax collection and filing requirements.
Counting New Jersey, there are about 10 states with some form of this marketplace facilitator sales tax rule. However, the application of these rules is not uniform among the states, and so marketplace facilitators and marketplace sellers must each determine their own sales tax obligations. Therefore, depending upon your business operations and sales volume among the states, it is entirely possible for your business to be directly required to collect and remit sales tax in one state while your sales through a marketplace facilitator may instead have the sales tax collected and remitted by the marketplace facilitator itself!
Whether your business sells direct to consumer or through an online marketplace, the sales tax nexus and collection requirements are continuing to evolve each day, and all sellers are advised to address the impact of these rules immediately. Aprio’s SALT team follows these state developments daily and can help your business navigate the changing sales tax landscape to ensure that your business is complying with its sales tax obligations and does not generate unexpected sales tax liabilities. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the October 2018 SALT Newsletter.
 For a summary of some of these rules, see these recent articles from previous Aprio SALT Newsletters: “Wayfair and Sales Tax Nexus: Let the Aftermath Begin” and “Wayfair and Sales Tax Nexus: The Aftermath Part 2”
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.