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Jamie C. Yesnowitz
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On Oct. 4, 2018, New Jersey enacted legislation imposing sales tax collection requirements on certain remote sellers and marketplace facilitators.1
This legislation was enacted in response to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc
that held physical presence no longer is required in order for a state to impose sales tax. For sales made on or after Nov. 1, 2018
, remote sellers are required to collect sales tax if they have more than $100,000 of sales or at least 200 separate transactions in the state. Marketplace facilitators are required to collect and remit sales tax on all marketplace transactions. The New Jersey Division of Taxation recently issued guidance to explain implementation of these new requirements. Finally, the definition of “transient space marketplace” is amended to exclude travel agencies and online travel agencies.
Remote seller collection requirement
Beginning Nov. 1, 2018, a seller that makes a retail sale of tangible personal property, specified digital products or taxable services for delivery in New Jersey and does not have a physical presence in the state must collect sales tax if the seller meets either of the following criteria:
- The seller’s gross revenue from delivery of tangible personal property, specified digital products or taxable services for delivery in the state in the calendar year or the prior calendar year exceeds $100,000; or
- The seller sold tangible personal property, specified digital products or taxable services for delivery in the state in 200 or more separate transactions during the calendar year or prior calendar year. 3
The Division of Taxation has issued guidance explaining implementation of the remote seller sales tax collection requirements.4
Beginning Nov. 1, 2018, a remote seller that satisfies one or both thresholds should register on the Division of Revenue and Enterprise Services website. In the alternative, because the state is a full member of the Streamlined Sales and Use Tax Governing Board, a remote seller may register through the Streamlined Sales Tax Registration System. Remote sellers that satisfy the economic nexus threshold must register, but they can request to be placed on a non-reporting basis for sales tax if: (i) they sell solely through a marketplace; or (ii) they only make sales that are for resale or otherwise nontaxable.5
Remote sellers are not required to collect and remit sales tax on marketplace sales because marketplace facilitators have this responsibility.
Marketplace facilitators and sellers
Beginning Nov. 1, 2018, the legislation imposes sales tax registration, collection and remittance requirements on marketplace facilitators.6
A marketplace facilitator is any person (including an affiliate) who facilitates a retail sale of tangible personal property, specified digital products or taxable services by directly or indirectly performing at least one of nine operational activities and at least one of five collection or payment activities.7
The marketplace facilitator is required to collect sales tax on sales of tangible personal property, specified digital products and taxable services delivered into New Jersey, which are made by a marketplace seller8
through any physical or electronic marketplace owned, operated or controlled by the marketplace facilitator. A marketplace facilitator is required to collect tax even if the marketplace seller is registered with New Jersey to collect and remit tax.9
However, a marketplace facilitator and marketplace seller may enter into an agreement regarding the collection and remittance of the tax.10
Note that a marketplace seller may be a remote seller or a seller with a physical presence in New Jersey.11
The marketplace must collect and remit tax regardless of whether the marketplace seller satisfies either of the remote seller economic nexus thresholds.
Following each retail sale made through the marketplace, the marketplace facilitator must provide the purchaser with a sales slip, invoice, receipt or other statement or memorandum of the price paid or payable.12
The amount of tax due must be separately stated.
Possible leniency for marketplace facilitators
If the marketplace facilitator demonstrates that it has made a reasonable effort to obtain accurate information from the marketplace seller about a retail sale and that the failure to collect and pay the correct amount of sales tax was due to incorrect information from the marketplace seller, the marketplace facilitator is relieved of sales tax liability for the retail sale.13
If the marketplace facilitator is relieved of liability, the seller is liable for the sales tax. Upon written application and for good cause shown, the Division may temporarily suspend or delay the registration, collection and remittance obligations of a marketplace facilitator for up to 180 days. 14
Audits and registration
A marketplace facilitator is subject to audit by the Division for all retail sales for which it is required to collect and remit tax. 15
If the Division audits the marketplace facilitator, the Division may not audit the marketplace seller for the same retail sales unless the marketplace facilitator seeks the liability relief discussed above. The Division advises marketplace sellers to contact the marketplace facilitator to ensure that the information on their marketplace sales in New Jersey is provided on a regular basis.
The Division clarifies the registration and collection requirements for marketplace facilitators.16
Beginning Nov. 1, 2018, new business registrants should register on the Division of Revenue and Enterprise Services website. Marketplace facilitators that are already registered to collect sales tax in New Jersey must establish a sub-account to report and remit the tax collected for marketplace sellers.
The Division clarifies the registration and collection requirements for marketplace facilitators. Beginning Nov. 1, 2018, new business registrants should register on the Division of Revenue and Enterprise Services website. Marketplace facilitators that are already registered to collect sales tax in New Jersey must establish a sub-account to report and remit the tax collected for marketplace sellers.
Transient space marketplace
Transient space marketplaces are required to collect sales tax.17
The definition of “transient space marketplace” is amended to exclude a travel agency or an online travel agency.18
New Jersey is the latest state to enact legislation in response to the U.S. Supreme Court’s Wayfair
decision released on June 21, 2018. For remote sellers, the sales and transaction thresholds are identical to the thresholds in the South Dakota law that was approved by the Supreme Court. However, New Jersey followed a somewhat complicated path to enacting the remote seller and marketplace facilitator collection requirements. On July 1, 2018, New Jersey was the first state to pass legislation in direct response to Wayfair
However, New Jersey Gov. Philip Murphy conditionally vetoed this legislation on Aug. 27, 2018, and proposed revisions to assist the Division in administering the new collection requirements.20
Prior to this conditional veto, the Division issued administrative guidance on Aug. 14, 2018 to impose the economic nexus standards for remote sellers effective Oct. 1, 2018.21
However, this administrative guidance was superseded by the recently enacted legislation with the Nov. 1, 2018, effective date.
The complexity of the marketplace facilitator rules is likely to pose problems to these businesses from a compliance perspective. While some businesses will easily qualify under the broad marketplace facilitator definition and will be subject to the new requirements, others that follow more non-traditional models that provide de minimis
support to purchasers and sellers through very limited activities may be surprised that they could qualify as well. Further, the rules appear to go well beyond the economic nexus provisions endorsed in Wayfair
, in that no specific in-state transactional or sales thresholds are set for marketplace facilitators. The legislation and the Division’s guidance envision the difficulties that are likely to arise when marketplace facilitators are audited by the Division, as sales tax agreements between marketplace facilitators and sellers under the electronic platforms will mean that sales tax payments could be made from more than one entity, and thus more difficult to track.
Many states have adopted sales tax economic nexus standards through a variety of methods including legislation, regulations and administrative pronouncements. New Jersey joins a group of states, including Alabama, Connecticut, Iowa, Minnesota, Oklahoma, Pennsylvania, Rhode Island, South Dakota and Washington, in enacting marketplace provisions. Because the marketplace provisions vary among states, taxpayers should carefully consider the effective dates, definitions, and collection requirements for each state. Additional states are likely to adopt their own marketplace provisions in the near future.
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