If you are a freelancer who sells taxable goods online, you are likely aware of the challenges of collecting and remitting sales tax in multiple jurisdictions. A case in point that you should pay attention to if your business includes sales in New York State (NYS): the state recently enacted legislation to force marketplace providers to collect sales tax on behalf of their sellers. This requirement went into effect on June 1, 2019. The following is what you need to know:
The definition of a marketplace provider
In the new NYS regulation, a marketplace provider is someone who has an agreement to facilitate the sales of tangible personal property for a marketplace seller. To facilitate a sale of tangible personal property the following must hold true:
- The person must provide the conduit or platform by which a sale is transacted or an offer of sale is accepted. A conduit or platform includes a website, catalog, shop, store, booth, kiosk, etc.; and
- the person or their affiliate (or their contracted third party entity) collects the marketplace seller’s customer receipts for the sale of tangible personal property.
The definition of a marketplace seller
In the new NYS regulation, a marketplace seller is defined as any person who has an agreement with a marketplace provider to facilitate sales of tangible personal property on their behalf.
A marketplace provider cannot refuse to collect tax on a marketplace seller’s sales, even if the seller is registered for sales tax purposes.
Responsibilities of a marketplace provider
As part of the new NYS requirements, a marketplace provider must:
- Be registered with the Department of Taxation and Finance for sales tax purposes at least 20 days before selling in the state.
- Register for sales tax purposes and collect and remit sales tax even if they have no physical presence in New York but are facilitating sales for a marketplace seller, if in the previous four sales tax quarters:
- The marketplace seller’s cumulative gross receipt total from sales made or facilitated of tangible personal property delivered into New York was in excess of $300,000, and
- More than 100 sales of tangible personal property were made and delivered into NYS.
- Collect and remit sales tax on all taxable sales of tangible personal property. Tangible personal property includes prewritten computer software that is downloaded or remotely accessed by a customer but it excludes services, restaurant food, hotel occupancy, or admissions to a place of amusement.
- Also collect and remit tax due on sales of tangible personal property in New York when they are transacted outside of an agreement with a marketplace seller.
Specific sales tax obligations for marketplace providers
Just like any other vendor, a marketplace provider has the following sales tax obligations and rights:
- Getting a Certificate of Authority.
- Collecting sales tax, filing sales tax returns, and remitting sales tax.
- The right to accept a certificate or other document proving an exemption or exclusion from sales tax; and
- a marketplace provider must issue Form ST-150 the Marketplace Provider Certificate of Collection, to its marketplace sellers for sales of tangible personal property.
- The right to receive a sales tax refund.
In addition, marketplace providers must keep records and cooperate with the Department of Taxation and Finance to ensure the proper collection and remittance of tax imposed, collected, or required to be collected.
Liability relief for marketplace providers and marketplace sellers
Even the NYS Department of Taxation and Finance understands that occasionally errors happen. As such, a marketplace provider is not held responsible for failure to collect the right amount of sales tax if they can prove that they had incorrect or not enough information from the marketplace seller.
Any marketplace seller registered to collect sales tax does will receive sales tax liability relief on a sale of tangible personal property if:
- They can prove (with a properly completed Form ST-150, Marketplace Provider Certificate of Collection) that a sale was facilitated by a marketplace provider registered to collect sales tax on their behalf and,
- the error in collecting the proper amount of tax on a sale by the marketplace provider was not the caused by the marketplace seller providing erroneous information.
There is no liability relief in either case if there is an affiliation between the marketplace seller and marketplace provider.
As you can see, if you sell goods on behalf of a marketplace provider into NYS, you need to ensure that you are meeting these new requirements. Likewise, if you are depending on a marketplace provider to sell goods for you in the state, now is the time to make sure they are aware of — and following — these new rules. Failure to do so could mean facing substantial fines and penalties.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union* and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, http://www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.