IPT 2017 Sales Tax Symposium San Antonio, Texas

September 17-20

Online Marketplace

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Presenters

Lauren Conn – Senior Manager, Sales Tax Audit – Wal-Mart – lauren.conn@walmart.com

William Waltman – Partner, Indirect Tax – PricewaterhouseCoopers LLP – william.p.waltman@pwc.com

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Introduction

Update on the latest technical and administrative developments regarding online marketplace issues for traditional retailers and emerging technologies alike.

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Learning Objectives

At the end of this session, the participant will be able to: Discuss key indirect tax issues related to hosting

and selling in an online marketplace; Identify best practices for managing indirect tax

issues in an online marketplace from perspective of both operators and sellers; and

Discuss trends in state treatment of operators and sellers in online marketplaces.

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What is an Online Marketplace?

A type of e-commerce site where product and/or service information is provided by multiple third parties.

Examples of online marketplace operators include: – Amazon – eBay – Etsy – Walmart – Online travel companies (Expedia, Hotwire, Priceline,

Travelocity, etc.)

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Popularity of Online Marketplaces

Source: https://www.invespcro.com/blog/global-online-retail-spending-statistics-and-trends/

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Estimated Uncollected Sales and Use Tax (in millions)

Estimate of uncollected sales and use tax revenue resulting from electronic commerce according to a report compiled by the National Conference of State Legislatures and the International Council of Shopping Centers. Source: http://www.efairness.org/files/Updated%20Sales%20Tax%20Loss%20Report.pdf

Year Uncollected Tax Electronic Sales

Uncollected Tax Non-Electronic Sales

Total Uncollected Sales & Use Tax

2012 $11,393 $11,867 $23,260 2013 $12,915 $11,486 $24,401 2014 $14,936 $11,566 $26,502 2015 $17,182 $12,375 $29,558

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Business Models

Hosting vs. Selling – Host: Provides the e-commerce site for sellers to list their

products and services. – Seller: Lists products and services on the host’s online

marketplace. Fulfilled By

– Third-party sellers leverages the online marketplace vendor’s infrastructure to warehouse items, pack and ship orders to customers, and provide customer service.

Payment Methods – Provider accepts payment and gives seller commission. – Seller receives full payment and pays provider a fee.

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Who is the Seller…

If you are the consumer? If you are the auditor? If you are the marketplace provider?

– Difficulty in obtaining third party data

Who is the Seller? Cont’d

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1)

2)

Who is the Seller? Cont’d

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3)

4)

Other Considerations

Online Terms and Conditions What do the online terms and conditions say with respect to title passage;

collection and remittance of taxes Do all parties accept the same terms and conditions for each transaction? Collection and Reporting Could any of these collection models be considered taxable services such as

data processing? Could the type of sale or services being sold affect the responsibilities of the

Online provider? (i.e. Amusement Services in Texas)

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What are the Taxing Jurisdictions Saying?

Examples of Existing Laws State Responses to Online Marketplaces

Auctioneer Laws

Arizona Sale is defined as any transfer of title or possession, or both, exchange, barter,

lease or rental, conditional or otherwise, in any manner or by any means whatever, including consignment transactions and auctions, of tangible personal property or other activities taxable under this chapter, for a consideration.

California An internet auctioneer is a retailer of equipment and must report sales tax from

the retail sales of property shipped from a California location of the owner of the equipment to a California location of the buyer of the equipment.

Indiana Like an assignee or auctioneer, an online marketplace is required to collect

sales tax when applicable and remit tax to the State on behalf of its third party sellers.

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State Responses to Online Marketplaces - Alabama

City of Birmingham et al. v. Orbitz, LLC (04/13/2012) Facts:

– Plaintiffs are 9 Alabama municipalities and defendants are 16 online travel service companies (OTCs)

– When a customer makes a reservation through the OTC’s website, the customer is charged an amount for the hotel room, a lodging tax recovery charge imposed on the hotel room charge and an additional amount as compensation for the OTC’s services

– The OTC remits the room rental charge and the tax recovery charge to the hotel, which then pays the lodging taxes to the State of Alabama and the appropriate municipality

Issue: Should the lodgings tax also be imposed on the amount the OTCs charge the customer for their online services?

Ruling: The OTCs are not engaged in the business of renting or furnishing lodgings. They provide a service to the public and their compensation is not subject to the lodging tax.

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State Responses to Online Marketplaces - Arizona

Arizona Transaction Privilege Tax Ruling TPR 16-3 (September 20, 2016) Issue: Is a business with Arizona nexus for transaction privilege tax (“TPT”)

purposes that operates an online marketplace responsible for the retail TPT on sales to Arizona customers?

Ruling: A business that operates an online marketplace by providing a primary contact point for customer service, processing payments on behalf of third party sellers and providing or controlling the fulfillment process, is a retailer conducting taxable sales. The gross receipts derived from the sales of tangible personal property to Arizona purchasers are subject to retail TPT, provided that the business already has nexus for Arizona TPT purposes.

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State Responses to Online Marketplaces - Indiana

Indiana Revenue Ruling No. 2016-07ST (11/4/2016) Online marketplace providers are considered the seller of the products in their

various marketplaces. Like an assignee or auctioneer, an online marketplace is required to collect

sales tax when applicable and remit tax to the State on behalf of its third party sellers.

Third party sellers are not responsible for collecting sales tax and must not also collect sales tax on the same sales.

Online marketplace providers may accept properly executed exemption certificates from customers listing the provider as the seller.

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State Responses to Online Marketplaces - Minnesota

Minnesota House File 1 First state to enact marketplace provider legislation. Revised the definition of “retailer maintaining a place of business in this state”

to include retailers that sell goods through a “marketplace provider.” Marketplace providers who facilitate third party sales in Minnesota would be

responsible for collecting sales tax on behalf of third party sellers unless the third party seller is already registered to collect sales tax in Minnesota.

– Third party sellers who have other forms of sales tax nexus in Minnesota (a home office/business, physical location, employee, salesperson, etc.) would still be required to register for a Minnesota sales tax permit and collect sales tax.

Marketplace providers who facilitate less than $10,000 per year in sales would be exempt from collecting sales tax on behalf of their third party sellers.

Effective July 1, 2019

State Responses to Online Marketplaces - Washington

Washington Official Material: Online Sales of Goods (September 30, 2010) Out-of-state businesses that sell tangible personal property to Washington

consumers via the Internet may be required to register and collect retail sales tax. A business will have to register and collect retail sales tax if it has nexus with Washington.

Individuals making occasional retail sales through online auctions or marketplaces are not required to register or collect and remit retail sales tax because they are not engaged in business.

Individuals routinely making retail sales through online auctions or marketplaces are considered engaging in business and are required to register with the Department of Revenue and collect retail sales tax on sales to Washington customers.

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State Responses to Online Marketplaces - South Carolina

Travelscape, LLC v. South Carolina Department of Revenue (02/12/2009) Facts:

– Petitioner is an online travel company doing business as Expendia.com – Petitioner contracts with hotels in South Carolina to set room rates that the hotels are

willing to accept (the net room rate) for reservations booked through Expedia.com – Petitioner charges its customer’s credit card account at the time a reservations is

made for the net room rate, Petitioner’s margin, petitioner’s service fees and the accommodations tax based on the net room rate

– Petitioner pays the net room rate and the accompanying accommodation tax to the hotel

– The hotel remits the tax to the South Carolina Department of Revenue Issue: Are the gross proceeds from the rental of South Carolina hotel rooms

received by Petitioner subject to sales tax? Ruling: The entire amount Petitioner receives from its customers (not just the

net room rate) should be considered "gross proceeds" derived from the furnishing of accommodations and should be subject to South Caroline sales tax. 20

Where Do You Go from Here?

Where do you go from here? Proposed MTC VDA planned between Aug 17th and Oct 17th

– Multistate Tax Commission approved voluntary disclosure plan – Reports say some 35,000 Marketplace Sellers may seek Tax Pardon

Under Program – Sellers can choose which states to register in under program – some states may forgive back tax liabilities for sales and use taxes, as well

as income and franchise taxes – MTC memo claims sellers may have physical presence nexus with

inventory stored in an in-state fulfillment center or warehouse operated by a marketplace provider.

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Where Do You Go from Here?

Traditional VDA programs Formal and informal Collection Agreements with the States? Other?

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