Arizona requires marketplace facilitators and remote sellers to collect tax

Remote sellers and marketplace facilitators are required to collect and remit Arizona’s transaction privilege tax starting October 1, 2019, under the state’s new economic nexus law (House Bill 2757). Governor Doug Ducey has promised to sign it.

State economic nexus laws generally allow an exception for small sellers, and Arizona’s new law is no different. However, in the Grand Canyon State, thresholds for remote sellers and marketplace facilitators do differ.

A remote seller is required to register with the Arizona Department of Revenue and collect transaction privilege tax (TPT) on retail sales of tangible personal property if, in the previous or current calendar year, that seller has gross proceeds of sales or gross income derived from business in the state (excluding marketplace sales) totaling:

• More than $200,000 for calendar year 2019
• More than $150,000 for calendar year 2020
• More than $100,000 for calendar year 2021 and subsequent calendar years

It’s a little more cut-and-dried for marketplace facilitators. A marketplace facilitator establishes economic nexus with Arizona and is required to register to collect TPT on Arizona transactions if, in the current or previous calendar year, gross proceeds of sales or gross income derived from that marketplace facilitator’s business is more than $100,000. This is a change from the state’s existing rule regarding marketplace sales.

The threshold amount includes sales made on a marketplace’s own behalf and sales made through a marketplace on behalf of at least one seller. A marketplace that facilitates no sales for third parties would therefore be considered a remote seller rather than a marketplace facilitator.

Marketplace facilitators that have economic nexus have two options:

• Report all sales made through the marketplace (one combined tax return); or
• Report its sales separately from marketplace sales (two returns).

If an economic nexus threshold wasn’t met in the previous calendar year but is met during the current calendar year, the remote seller or marketplace facilitator must obtain a transaction privilege tax license and commence remitting TPT “on the first day of the month that starts at least 30 days after the threshold is met.” 

Once established, nexus remains in effect for the remainder of the calendar year and subsequent calendar year. If the threshold isn’t met during the subsequent calendar year, the retailer is permitted to cancel its TPT license and cease collecting and remitting TPT. 

This measure also prohibits a city or town from requiring a remote seller or remote marketplace to obtain a local business license if its only connection to the state is economic nexus. Those required to obtain such a license aren’t required to pay applicable licensing fees.

With the enactment of HB 2757, economic nexus laws are on the books in 43 states plus the District of Columbia (the laws in Massachusetts and Ohio apply to internet sales only). Laws requiring marketplace facilitators to collect and remit tax on third-party sales have been adopted by 27 states.

Learn where you’re at risk for establishing a remote sales tax collection obligation with our free sales tax risk assessment.