New York State Governor Andrew Cuomo is proposing several tax-related changes in the 2017-2018 Executive Budget Bill ("FY 2018 Budget Bill"), one of which is the marketplace sales tax. In the proposal he writes:
"Online providers such as Amazon and eBay supply a marketplace for sellers from outside of the online provider to sell their products to consumers. Currently, such outside sellers are required to collect sales tax from New York residents if the seller is located in New York. Many marketplace providers agree to collect the tax for the outside seller in this instance. The Executive Budget requires the marketplace provider to collect the tax when they facilitate the sale to residents, whether the seller is located within, or outside, New York."
This proposal is very similar to Governor’s 2015-2016 Budget Bill, which was criticized for questionable constitutionality and its potential to create significant compliance burdens for marketplaces.
Under current law, sellers collect New York sales tax only if they are located in New York. If instead they are located in another state, no tax is collected from the New York State resident. Sellers using Fulfillment by Amazon (FBA) also collect New York sales tax if their inventory is stored in one of the New York warehouses, known as having sales tax nexus.
The Governor wants to address the 50% of sales on Amazon which likely are not collecting sales tax because they are being sold by marketplace sellers. Amazon already collects sales tax in almost all states for their own sales.
This new proposal would force eBay, Amazon, and Etsy, as well as any other marketplaces with large enough presence in New York (that process more than $100 million in sales a year from New York residents), to collect taxes from all New York State residents regardless of where the seller is located.
The bill effectively shifts the sales tax collection burden from the seller to the marketplace.
Marketplaces, online sellers and even broader tech companies are set to kick off an aggressive campaign against this proposal. We have already heard of eBay sending messages to their New York based buyers and sellers asking them to contact their state legislators.
TechNet, representing tech CEOs and executives, is campaigning against this budget proposal. TechNet is joined in the campaign by WE R HERE.
“The Marketplace Sales Tax scheme would hurt New Yorkers, increase costs, and undermine the innovation economy.”
-- Matthew Mincieli, Northeast region executive director for TechNet.
If passed, New York would be the first state to do so, and it is believed this would set a precedent for other states to follow.