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States Are Giving Sellers and Marketplaces Tax Headaches

Online Sales Tax

Online Sales Tax Washington StateThere are 45 states that impose statewide sales tax, and some of them are now making things complicated for online sellers and the marketplaces on which they sell, as Etsy and its sellers are discovering.

At least two states have required Amazon to hand over seller information for online sales-tax collection purposes (Massachusetts and Rhode Island). And two states (Massachusetts and Vermont) are also looking to payment processors like PayPal for help in identifying possible income-tax evaders by requiring them to report in-state residents and businesses for which they’ve processed at least $600 in payments.

It’s unclear whether the Supreme Court will take that into consideration when it examines the Wayfair case this spring, but it certainly considered the complexity of collecting and remitting state and local taxes for mail order firms in 1992 in the case of Quill Corp. v. North Dakota. According to the Tax Foundation:

“The Supreme Court’s reasoning was at least partially based on the fact that, at the time the case was decided in 1992, there were over 6,000 separate sales and use tax jurisdictions in the United States (states, localities, special tax districts, etc.) and to impose a collection obligation on a remote seller would impose a crushing burden that would severely restrict interstate commerce.”

States are getting creative (or are completely ignoring Quill) in crafting laws to try and get out-of-state sellers to collect tax on transactions to their residents.

For example, Washington state is requiring “marketplace facilitators” to collect sales tax on all transactions between sellers and Washington-based buyers, regardless of whether the sellers have a physical presence in the state.

Amazon and Etsy began collecting sales tax for Washington State in January, but Etsy has run into a road bump. On January 6, Etsy acknowledged the following problem:

“To clarify the nature of the issue, the 2018 Taxpayer ID page is currently displaying the gross amounts including WA sales tax, when it should not. Rest assured the WA sales tax funds are not “revenue” to Sellers, and thus won’t appear on Forms 1099 when those Forms are issued in January of 2019 (reporting the tax year 2018).”

It’s clearly costing Etsy resources to fix – on February 14, Etsy provided the following update to sellers in a discussion board thread: “I’m so sorry for the delay, I just checked on the status, our engineers still have some more work to do on this.” And in the meantime, sellers are unable to view accurate gross sales figures.

Etsy sellers were also impacted by a glitch involving the new laws involving income-tax reporting. Etsy sent 1099K forms to Etsy sellers in Vermont and Massachusetts for payments processed through Etsy Payments – but in some cases, PayPal also sent 1099Ks in error for the same payments.

Etsy also reported on Tuesday a recent tax-related privacy breach impacting as many as 1,800 sellers (Etsy has about 1.8 million sellers and said the glitch impacted .1%) (Update 2/15/18: Etsy confirmed the incident impacted about 1,500 sellers):

“Etsy recently became aware that a document containing certain tax information for less than 0.1% of sellers was inadvertently sent by an Etsy employee to one Etsy seller. The Etsy seller reported the error to us and confirmed that the document was deleted the same day. For privacy reasons, we cannot provide specifics about individual seller accounts in the forums. If you received a letter about this issue and you have questions, please contact our support teams directly and they’ll get back to you as soon as possible: www.etsy.com/help/contact, or reach out to the phone number provided in your letter. Etsy sent letters to relevant sellers on February 9, 2018. This did not involve any information about Etsy buyers.”

It does seem odd, however, regardless of new tax laws and practices, that an employee tasked with communicating with sellers would have access to a document containing tax information for multiple sellers. It’s especially concerning since many small sellers use social security numbers as their tax ID numbers.

If you run into tax problems, be sure to let us know by sending an email to the editor at ina@ecommercebytes.com.

Ina Steiner on EmailIna Steiner on LinkedinIna Steiner on Twitter
Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.

4 thoughts on “States Are Giving Sellers and Marketplaces Tax Headaches”

  1. So whats the problem….You live in a state that requires you to collect sales tax on sales made to residents of that state. No big deal. Collect the tax and remit it to the state. Quit being a dead beat tax evader and stop playing the I DIDN’T KNOW GAME

    1. You are missing the point. I live in Florida and collect(and remit to Florida) sales tax from buyers who reside in Florida. Now other states want me to collect(and remit to those states) sales tax from buyers in their states as well.

  2. @rktoys

    So you are one of those who says they can’t do it. Ebay does give a way to collect sales taxs from any state that you need. Hopefully the IRS catches you. You are a tax evader with your excuses.

    1. eBay may give you a way to collect those taxes, but they do not give you a way to remit taxes to thousands of tax jurisdictions. I would shut my business down before I would put up with that hardship.

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