New York Rules that Marketplace Facilitator is Required to Collect Sales Tax

Despite not having a marketplace facilitator statute at the time of the ruling, the state ruled that a marketplace facilitator’s participation in the transaction was enough for the state to classify it as a “vendor” that is obligated to collect sales tax.

By Tina M. Chunn, SALT Senior Manager

As we seek to keep up with the changing state sales tax collection requirements in a post-Wayfair world, one of the issues that is becoming more widespread pertains to states requiring marketplace facilitators to collect tax on sales of goods/services made by third-party sellers to customers in the state using the facilitator’s online marketplace.

A marketplace facilitator is a business that contracts with sellers to facilitate sales of the seller’s goods and/or services on its platform.  Functions performed by the marketplace facilitator may include one or more of the following: listing the products for sale, taking orders, processing and collecting payment, fulfilling shipment, providing customer service and accepting returns.  Approximately 30 states have either enacted or proposed legislation that obligates a marketplace facilitator meeting certain nexus and other requirements to collect and remit sales tax on sales made through its marketplace

However, not all states are waiting on legislation to impose that obligation.  Currently, Amazon is engaged in a lawsuit in South Carolina because the state is requiring Amazon to collect the state’s sales tax on third-party sales.  South Carolina’s position is that Amazon’s involvement with these transactions qualify it as a business that makes retail sales.  Similarly, on March 7, 2019, the New York State Department of Taxation and Finance issued an advisory opinion in which it ruled that an online marketplace facilitator is a vendor under the state’s sales tax statutes, and thus is responsible for the collection of sales taxes.[1]

The taxpayer provides an online marketplace for independent software vendors (“ISV”) to offer for sale software, games and apps for customers to download and use on their personal computing devices.  The customer may purchase the prewritten software through the marketplace using a credit card or other form of payment processed by the taxpayer on its own payment infrastructure.  The taxpayer delivers the prewritten software to the customer electronically from one of its data centers.  The actual license is between the ISV and the customer, but the taxpayer is not required to obtain permission from the ISV prior to the completion of the sale.  The ISV’s agreement with the taxpayer provides that the taxpayer will host and supply the prewritten software to customers on behalf of the ISV, process payments and remit the proceeds to the ISV, less the Petitioner’s service fee.  The ruling assumes that the taxpayer has sales tax nexus.

Since all of the parties agreed that the sales of prewritten software are subject to sales tax in New York when sold and electronically delivered to New York customers, the only guidance requested from the taxpayer is whether it qualifies as a vendor and is required to collect and remit sales tax on these transactions.  New York sales tax statues that define a “vendor” (i.e., anyone required to collect sales tax) include the following language:

“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.”[2]

Based on the statutory language and the fact that the taxpayer provides information about the ISVs’ products, brings buyers and sellers together by hosting the website where sales can be made and accepted, and collects the purchase price, the state ruled that the taxpayer meets the state definition as a vendor.  In particular, the state noted that the taxpayer, since it is collecting the purchase price, is in a better position than the ISVs to collect and remit sales tax, thereby improving the efficiency of sales tax administration.  This also relieves the administrative burden on the ISVs which may not need to register and file returns if their only sales are made through the taxpayer’s marketplace and the taxpayer is in compliance.

Petitioner requested additional guidance regarding whether its collection  and remittance of sales tax will relieve the ISVs of sales tax liability.  New York agreed that the ISV is not liable for any taxes properly collected and remitted by the taxpayer on their sales.  Further, the taxpayer can accept resale and other exemption certificates for these transactions and, if accepted in good faith and properly executed, they will protect both the taxpayer and ISVs from the presumption of taxability.  Finally, the taxpayer would be entitled to a refund of excess sales taxes collected that have been properly refunded to the customer.

Marketplace facilitator rules are becoming more widespread and could extend beyond traditional online marketplace facilitators such as Amazon and Etsy.  For example, a version of a marketplace facilitator bill in Georgia may have imposed sales tax collection obligations on companies such as Uber, Lyft, and AirBnB.[3]  In this post-Wayfair world, states are feeling emboldened, and businesses must pay close attention to evolving sales tax nexus and collection rules.

Aprio’s SALT team is following these rules closely, and we can assist your business to make sure that you remain in compliance with sales tax obligations and do not incur any unexpected exposure.  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.

Contact Tina Chunn at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the April 2019 SALT Newsletter.

[1] New York Advisory Opinion TSB-A 19(1)S, March 7, 2019.  It is worth noting that after this Advisory Opinion was issued, New York Governor signed legislation on April 12, 2019, that, among other things, imposes sales tax collection obligations, effective September 1, 2019, on marketplace facilitators meeting certain requirements.  See S.B. 1509.   Nonetheless, this ruling is instructive regarding the potential obligation of marketplace facilitators to collect sales tax in the absence of explicit legislation.

[2] N.Y. Tax Law §1101(b)(8)(ii)(A).

[3] Georgia H.B. 276 (the legislation ultimately did not pass).

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.