Pennsylvania online sales tax law now in effect; Amazon collecting on behalf of third-party sellers

A new law requiring marketplace facilitators to collect and remit tax on third-party sales went into effect in Pennsylvania on March 1. To comply with the new law, Amazon will start collecting and remitting tax for its third-party sellers in Pennsylvania on April 1, 2018. The news was announced on Amazon’s seller central and was confirmed by an Amazon spokesperson.

Until now, Amazon has only collected tax on sales of its own products in Pennsylvania and most other states. The company has long maintained it isn’t the seller on marketplace transactions, merely the facilitator.

Online marketplace sales now comprise more than half of Amazon’s total sales. In fact, according to a Forrester Research report from September 2017, half of all online spending in 2016 occurred on marketplaces, and that percentage is expected to jump to two-thirds in five years. Given the volume of these sales, states are becoming more aggressive in their efforts to tax them.

Physical presence mandates marketplace sales tax collection by marketplace facilitators

Under Pennsylvania’s Marketplace Facilitator law, a marketplace facilitator that maintains a place of business in Pennsylvania is required to both “collect and remit sales tax on its own taxable sales,” and “collect and remit sales tax on the taxable sales made through its forum by any marketplace seller using the forum.”

As explained by the Pennsylvania Department of Revenue, “A marketplace facilitator facilitates the sale of goods and services by:

1. Advertising goods and services for sale in a physical or electronic forum.
2. Collecting payment from the purchaser on behalf of the seller either directly or indirectly
3. Remitting payment back to the seller.”

Amazon has a large physical presence in Pennsylvania, so the company is required to collect and remit tax on its marketplace sales under the state’s new law. As Amazon explains to third-party sellers, “No action is required in your tax calculation service for states where Amazon automatically calculates, collects, and remits tax.”

However, the company does advise marketplace sellers to “consider consulting a tax advisor for specific information relating to your business.” Those that sell through different channels should be particularly vigilant and learn how Pennsylvania’s new law could impact those sales.

Lack of physical presence doesn’t get marketplace facilitators off the hook

Marketplace facilitators that don’t have a physical presence in Pennsylvania aren’t off the hook. They have two options:

1. Voluntarily register to collect and remit Pennsylvania sales tax; or
2. Comply with the state’s new notice and reporting requirements

Marketplace facilitators without a physical presence in Pennsylvania were required to choose one of the above options and remit a completed Annual Marketplace Sales Election Form with the state by March 1, 2018. Those who opt to collect and remit sales tax must begin doing so by April 1, 2018.

The choice remains in effect through June 30, 2019, although a facilitator may elect to collect and remit sales tax at any time. Failure to file the Annual Marketplace Sales Election Form is treated by the Department of Revenue as an election to comply with the notice and reporting requirements.

Notice and reporting requirements for non-collecting marketplace facilitators

As of April 1, 2018, non-collecting marketplace facilitators must post a notice on its forum stating, in part, that Pennsylvania sales or use tax may be due on the purchase and delivery of tangible personal property to Pennsylvania individuals and businesses, and the purchaser is required to file a use tax return if tax is due.

Non-collecting retailers also have to provide a written notice on all invoices, order forms, sales receipts, or similar documents, to each purchaser at the time of each sale, stating, in part, that Pennsylvania sales tax was not collected on this sale and the purchaser may be required to remit use tax directly to the Commonwealth if the purchases are subject to Pennsylvania sales tax.

And they have to give an annual report to the purchaser by January 31 of each year that includes the following information:

• “[Name of facilitator] did not collect sales tax in connection with your transactions. You may be required to remit use tax to the Pennsylvania Department of Revenue.”
• “A list by date, type, and purchase price of each product purchased or leased by the purchaser from this marketplace facilitator, and delivered to a location within Pennsylvania.

Finally, non-collecting retailers must provide an annual report to the Pennsylvania Department of Revenue by January 31 of each year that includes the following information:

• The purchaser’s name, billing address, delivery address and, if different, the purchaser’s last known mailing address.
• The total dollar amount of purchases from this marketplace facilitator.
• The name and address of the marketplace facilitator that made the sale.

Failure to comply with these notice and reporting requirements may result in a hefty penalty: $20,000 per violation, per year, or 20 percent of total Pennsylvania sales during the previous 12 months, whichever is less.

Pennsylvania in step with a new, more aggressive, remote sales tax trend

Pennsylvania isn’t the first state to enact or enforce a marketplace facilitator tax such as this. A similar law took effect in Washington state on January 1, 2018, and Amazon has been collecting and remitting tax on its Washington marketplace sales since that date. Etsy is also complying with the Washington law, as is Walmart.

Last August, Rhode Island enacted a new tax law requiring retail sale facilitators to annually provide the Rhode Island Division of Taxation with a list of names and addresses of retailers for whom it collects Rhode Island sales tax, and a list of names and addresses of retailers that use its services but for whom it doesn’t collect Rhode Island sales tax. In mid-February, Amazon revealed that it would provide third-party seller contact information to the Rhode Island tax authority information by February 15, 2018.

Other states are taking note. New York Governor Andrew Cuomo wants to require internet marketplace facilitators to collect tax on their New York marketplace sales; and Hawaii is looking at imposing notice and reporting requirements on non-collecting remote sellers and marketplace facilitators.

If you make sales through an online marketplace, now would be a good time to confirm that you’re in compliance with all state sales tax laws. The Professional Services Team at Avalara can help you start off on the right foot.