Going once, going twice: How North Carolina’s marketplace facilitator law applies to animal auctioneers — Wacky Tax Wednesday

Not knowing much about animal auctions, I didn’t realize a special notice regarding the sales tax obligations of animal auctioneers would be necessary. But sales tax laws pertaining to animal auctioneers can be surprisingly nuanced. Whether an animal auctioneer needs to collect North Carolina sales tax on a transaction depends on a host of factors, including where the animal is delivered and the mode of transport. In fact, the more I explore this fascinating world, the more I understand why the North Carolina Department of Revenue (NCDOR) decided to publish Animal Auctioneer FAQs. 

In June 2018, the Supreme Court of the United States overruled a long-standing physical presence rule in South Dakota v. Wayfair, Inc. Prior to the decision, a state could require a business to collect and remit sales tax only if the business had a physical presence in the state. Post Wayfair, physical presence in a state is no longer the sole requisite to collect and remit sales tax, though physical presence in a state still creates a sales tax obligation. States can now impose a sales tax collection obligation based exclusively on economic activity in a state, or economic nexus.

Economic nexus laws enable states to capture a lot of previously untapped remote sales tax revenue, but since most provide an exception for small sellers, they usually don’t tax all remote sales. Marketplace facilitator laws help fill in those gaps by requiring marketplace facilitators to collect and remit the tax due on their third-party sales.

Like most states, North Carolina now enforces economic nexus (as of November 1, 2018) and marketplace facilitator (as of February 1, 2020) laws. More details about each are provided in this state-by-state guide to economic nexus laws and state-by-state guide to marketplace facilitator laws.

Animal auctioneers meeting the definition of marketplace facilitator are considered retailers in North Carolina effective February 1, 2020. They’re required to register and collect and remit sales and use tax on their taxable marketplace-facilitated sales in the state if they:

List or otherwise make available for sale a marketplace seller’s items through a marketplace they own or operate; and

Collect the sales or purchase price of a marketplace seller’s items, or otherwise process payment, or make payment processing services available to purchasers for the sale of a marketplace seller’s items.

The sales tax collection requirement also applies to marketplace facilitators with a physical presence in the state (e.g., those operating an auction barn), as well as remote marketplace facilitators meeting the economic nexus threshold of $100,000 in sales or 200 separate transactions in the previous or current calendar year.

NCDOR’s Animal Auctioneers FAQs also explains the following:

Remote sales tax liability is on a prospective basis. Remote sellers and marketplace facilitators (i.e., those with no physical presence in North Carolina) must collect and remit sales tax once the economic nexus threshold has been met. In other words, from that point forward. A remote auctioneer that crosses North Carolina’s economic nexus threshold in September 2020 wouldn’t be liable for tax on sales made prior to September 2020.

Once a retailer, always a retailer. Any auctioneer that was a North Carolina retailer with a sales tax obligation before North Carolina’s marketplace facilitator law took effect on February 1, 2020, “continues to be a retailer,” according to NCDOR. That includes auctioneers with a physical presence in the state.

Animals sold for delivery into another state are taxed according to the other state’s laws. If a North Carolina animal auctioneer makes a sale (e.g., by phone or internet) for delivery into another state, the sale would be taxed according to the laws in effect in that other state. North Carolina’s sales tax laws wouldn’t apply to the transaction.

Sales occurring in North Carolina aren’t subject to North Carolina sales tax if the auctioneer ships the item to a destination in another state via the United States Postal Service. If an individual attends an auction in North Carolina, purchases a queen honeybee, and has the auctioneer ship the queen to another state via USPS, North Carolina sales tax wouldn’t apply to the sale. However, the sale may be subject to the other state’s tax.

Sales occurring in North Carolina are subject to North Carolina sales tax if the purchaser arranges to transport the item to another state. An auctioneer would have to collect North Carolina sales tax if an individual purchased a donkey at an auction in North Carolina and arranged for a contractor to pick up the donkey and deliver it to another state. In this case, the transaction occurs in North Carolina.

Sales occurring in North Carolina aren’t subject to North Carolina sales tax if the auctioneer delivers an item to a destination in another state. If a purchaser buys an alpaca at a North Carolina auction and arranges for the auctioneer to deliver it to another state in the auctioneer’s vehicle, North Carolina sales tax wouldn’t apply to the transaction. However, the auctioneer must be able to document that the alpaca was transported to another state; without proof, the auctioneer could be held liable for North Carolina sales tax. And the auctioneer may be liable for sales tax in the state of delivery.

It’s no wonder representatives from the Auctioneers Association of North Carolina reached out to the NCDOR to gain clarity on their sales tax collection obligations. The complexity of these laws is wacky. So, I doff my hat to the NCDOR for providing such a thorough explanation.

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