The below excerpt is from Paul Jones’ article, “Practitioners Say State Marketplace Facilitator Laws Need Reform,” published by Tax Notes Today State on January 25, 2024. Read the full article on Tax Notes’ website (subscription required).
David A. Hughes, Chair of HMB’s State and Local Tax Group, recently led a panel discussion on the issues arising from state marketplace facilitator laws at the American Bar Association Section of Taxation’s midyear meeting. Practitioners cited loose definitions, cumbersome requirements, and practical challenges since the adoption of these laws four to five years ago.
“Your homework assignment is to go to your local representative or senator and talk to them about policy considerations and how we can make these marketplace facilitator laws more taxpayer-friendly,” David said to the audience.
During the discussion, David and the panel noted that facilitators and sellers face problems due to the broad definitions and varying regulations across different states. “You could have a marketplace facilitator in some states, where they qualify as a marketplace facilitator, they have a tax collection obligation and…they don’t touch the money,” David said. Such facilitators are obligated to remit the tax even though they don’t collect a payment, “so it’s a bit of an awkward position,” he added.
David also highlighted areas for improvement, including the need for some states to adopt centralized sales and use tax administration. “Let’s not make marketplace facilitators have to collect every single local sales tax in Colorado and Louisiana,” he commented. David suggested a more consistent approach to measuring the nexus threshold instead of using gross sales, retail sales or taxable sales. Additionally, he recommended the elimination of the transaction threshold, as it can impose heavy compliance costs on smaller businesses with a higher volume of low-value transactions.
Lastly, David suggested that states should ease off on the flood of other tax and fee compliance obligations that marketplace facilitators are required to handle. He proposed that marketplace facilitators and sellers should be allowed to create contracts that would enable sellers who prefer to collect and remit taxes on their sales to do so.