Grab a cup of coffee. This is a long (but very important) one…
(Read time: 9 minutes)
Within the next few months, Race Roster will begin collecting and remitting state sales tax on behalf of applicable events in accordance with the recent Marketplace Facilitator laws being enacted throughout the United States. These laws have come about as a result of the landmark Supreme Court decision in Wayfair v. South Dakota and, as of the date of this publication, 23 states throughout the United States have some form of Marketplace Facilitator legislation in force. By 2020, there will be over 40 states with Marketplace Facilitator Tax legislation.
What is South Dakota v. Wayfair, and Nexus?
South Dakota v. Wayfair was a Supreme Court case which overturned the Quill Corp. v. North Dakota case of 1992. In South Dakota v. Wayfair, the Supreme Court decided that sales made by out-of-state sellers should be subject to state sales tax based on a principal known as “economic nexus”.
States use the concept of nexus to determine whether a business or individual must register, collect and remit state sales tax on taxable sales made in their state. In the past, the determination of whether or not a business had nexus in a state was generally limited to physical presence – e.g. if the business had a physical office location in the state, had employees working in that state, or had an inventory warehouse.
South Dakota v. Wayfair introduced the idea of economic nexus to state sales tax legislation. Now, not only does physical presence constitute nexus in a particular state, but so does economic nexus. Economic nexus is nexus determined by economic activity, or the level of sales made into a particular state. Because of this new definition, out-of-state sellers (i.e. online retailers) can be liable for state sales tax without having a physical presence in the state.
Not only did this decision set a precedent for new nexus determinations, the decision also opened the door to what is being known as Marketplace Facilitator tax.
What is Marketplace Facilitator Tax?
Marketplace Facilitator Tax is the concept that Marketplace Facilitators are responsible for collecting and remitting the state sales tax on retail sales made by Marketplace Sellers on behalf of the Marketplace Seller.
What is a Marketplace Facilitator?
A Marketplace Facilitator is simply a business that provides an online infrastructure to facilitate the purchase and sale of goods and services between third parties. The definition of a Marketplace Facilitator is quite broad. In essence, any business that provides a platform to facilitate retail sales, process payments, and communicate the completion of the sale would fall under the definition of a Marketplace Facilitator. Some examples are Amazon, eBay, and Etsy.
What is a Marketplace Seller?
A Marketplace Seller is an individual or business who sells products and services via a marketplace. You, as a Race Roster client, would be a Marketplace Seller.
What does this mean for my event?
If your event is located in a state that has enacted Marketplace Facilitator tax, Race Roster will begin collecting and remitting sales tax on your behalf on taxable registration fees and any other taxable items that your event sells on our platform (subject to certain exceptions). As a result, when filling in your state sales tax returns, you will exclude sales made on the Race Roster platform. That being said, it will be important that you understand whether or not Race Roster has collected sales tax on your behalf. This information will be available via your event organizer dashboard for your reference. Ultimately, you continue to be responsible for ensuring that the appropriate sales tax is collected and remitted for your event.
Taxability of products and services
The taxability of products and services in the United States is a very complex topic. Each state has their own sales tax legislation and levies taxes on products and services differently. For example, general clothing is exempt from state sales tax in Minnesota, but in Texas the sale of clothing would be considered a taxable sale. Furthermore, while most States have a standard sales tax rate, there may also be local taxes applied to taxable sales and these rates can differ based on which city, county or district the sale is made. Finally, the taxability of products and services can change based on the type of organization selling the product or service. For example, tickets sold by a 501c3 organization for a fundraising event are taxable in the state of Kentucky, but in the state of Minnesota these sales are exempt from sales tax, provided the organization meets certain criteria relating to the use of the proceeds.
Rest assured, we have been working alongside tax professionals, lawyers, and service organizations to fully understand the taxability of the products and services sold on our platform, and our responsibilities as a marketplace. One of the ways we will be assessing the taxability of your products and services is through the use of a classification system. This classification system was designed by our tax service organization and will allow us to:
- Assess the taxability of a particular product/service in your jurisdiction
- Calculate the appropriate sales tax based on your jurisdiction
- Incorporate that sales tax charge into the checkout process
When setting up your event, you will be required to classify each item that you are selling in order for us to correctly assess the taxability of a particular product/service in your jurisdiction. This will ensure that we charge, collect and remit the appropriate amount of sales tax.
Finally, since states handle the taxability of certain organizations differently, when you are setting up your event you will be asked a series of questions designed to identify the type of organization you belong to, in order to assess the treatment of your organizations’ products and services for taxability purposes.
In summary, Race Roster is committed to providing you with the highest quality registration platform while remaining compliant in all areas of our business. While these new Marketplace Facilitator laws will require some changes to your administrative processes, we believe it is important to get ahead of these regulatory changes to ensure we are able to support you and your business in the long run.