Under Maryland law, an out-of-state vendor must collect sales and use tax if they have sufficient presence or “nexus” in Maryland. A substantial physical presence in Maryland is not needed for an out-of-state vendor to be required to collect Maryland sales and use tax. An out-of-state vendor will be required to collect sales and use tax if they sell tangible personal property or taxable services for delivery in Maryland and satisfy either of the following criteria: (1) gross revenue from the sales delivered to Maryland exceeds $100,000; or (2) the vendor sold property or services for delivery into Maryland in 200 or more separate transactions.
The Maryland General Assembly House Bill 1301, effective October 1, 2019, expands the definition of “vendor” to include marketplace facilitators and marketplace sellers. Marketplace facilitators, including online retailers, are required to collect Maryland sales and use tax on a retail sale or sale for use by a marketplace seller to a Maryland buyer. A marketplace seller, on the other hand, is not required to collect sales and use tax on these transactions if the marketplace facilitator collects the tax.
Who is a Marketplace Seller?
A marketplace seller is a person who makes a retail sale or sale for use through a physical or electronic marketplace operated by a marketplace facilitator. Marketplace sellers are now considered vendors under Maryland law. If a marketplace seller also makes direct sales, they would also be required to collect sales and use tax if they meet the above criteria.
All sales, including direct and facilitated, are counted for purposes of determining whether the above thresholds have been met. For example, an out-of-state vendor sells widgets to Maryland customers on its website and through a marketplace facilitator’s website (i.e. Amazon). They sold $75,000 of widgets to Maryland buyers on their website, and $75,000 to Maryland buyers on Amazon’s website. Since their total activity exceeds the $100,000 threshold, they must register with Maryland and collect sales and use tax on their direct sales.
Who is a Marketplace Facilitator?
A marketplace facilitator is a person that facilitates a retail sale by a marketplace seller by listing or advertising tangible personal property for sale in a marketplace, and, regardless of whether the person receives compensation or consideration, directly or indirectly collects payment from a buyer and transmits the payment to the marketplace seller. Online marketplaces, consignment stores, and auction houses are considered marketplace facilitators.
Marketplace facilitators must collect sales and use tax if they, in the previous or current calendar year, have gross revenue in excess of $100,000 from the sale of tangible personal property or taxable services delivered into the state, or have 200 or more separate transactions of the same. All sales, direct and facilitated, and tax-exempt, are counted in determining whether the facilitator has met either threshold.
A marketplace facilitator is not:
Marketplace facilitators should report sales and use tax collected on behalf of marketplace sellers separately from tax collected on its own sales. A marketplace facilitators’ tax collection requirement only applies to sales made on and after October 1, 2019.
Marketplace facilitators are not liable for failing to correctly collect sales and use tax if the facilitator can demonstrate to the Comptroller that the failure was due to incorrect or insufficient information provided by the marketplace seller.
A marketplace facilitator and seller may petition the Comptroller for a waiver of the requirement that the facilitator collect and remit sales and use tax if: the marketplace seller is a communications company that is publicly traded or is controlled by a publicly traded company; the marketplace facilitator and seller agree that the seller will collect all applicable sales and use taxes; and the marketplace seller provides evidence to the facilitator that it is licensed as an out-of-state vendor or retail vendor in Maryland.
If you are a marketplace facilitator such as an online marketplace, consignment store, auction house, etc., you are now considered a vendor and are subject to the above thresholds for collecting sales and use tax. If you are a marketplace seller currently selling items through a marketplace facilitator, you could have a Maryland sales and use tax liability depending on your direct and facilitated Maryland sales.