MI retailers selling products on Reverb.com need to be aware of the precedent set by the South Dakota v. Wayfair Inc., where the Supreme Court decision allows states to tax remote sales — like those made through Reverb and any other ecommerce sites — via a variety of methods.
Previously, states could only tax sales made by businesses with a physical presence in the state. Now, what they call “Economic Nexus” (economic presence in a state) is enough to trigger a sales tax collection obligation.
Broadly, there are two categories of legislation that states can now adopt and enforce for the purposes of tax collection: “Marketplace Facilitators” and “Economic Nexus.” Hence, when MI retailers sell to Marketplace Facilitator states, Reverb will be responsible for collecting and remitting sales taxes on an MI retailer’s behalf. Also, if an MI retailer sells more than $100,000 per year or engages in 100 or more transactions in a state, through Reverb and/or any other ecommerce site, the MI retailer may need to collect and remit their own sale taxes for Economic Nexus states.
“From the beginning, our goal at Reverb has been to make it easy for anyone to buy and sell musical instruments,” David Kalt, CEO of Reverb.com, told the Music & Sound Retailer. “Many of the retailers who use our site — particularly small, micro and individually owned businesses — see Reverb as an extension of their own tech, sales, customer service and marketing teams. We take that responsibility very seriously. When a change occurs that impacts the industry, we work to help our users in two ways: by educating them on the changes that will impact them and adjusting our own tools and services to assist in any way that we can.”
Reverb is now collecting taxes in Washington state and will be collecting in all Marketplace Facilitator states shortly. Marketplace Facilitator states as of March 1 also include Alabama, Arizona, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, Rhode Island, South Dakota and Virginia.
“If you are a Reverb seller in a Marketplace Facilitator state where Reverb collects and pays sales tax on your orders, you do not need to collect or remit sales taxes for your Reverb sales,” Reverb stressed. “Reverb will automatically collect sales tax for items purchased in Washington. It will not be possible for you to opt of this collection practice. The upside is that you will not have to take any additional action. There are no charges or fees for Reverb automatically calculating, collecting and remitting sales tax. You will not have to update your sales tax settings in your shop for orders shipped to Marketplace Facilitator states. Those tax settings are used for states/regions where Reverb does not automatically collect sales tax.”
Regarding PayPal-only sellers, if a buyer in Washington state, or other future Marketplace Facilitator states, purchases the order via PayPal, Reverb will supply the MI retailer with the sales tax as a part of your payout. But you should hold on to that sales tax money, because at the end of the month, Reverb will charge you for the sales tax on your monthly statement so that it can remit the tax to the relevant state.
Sales tax practices for states that adhere to Economic Nexus policies are more complicated, Reverb noted.
“The threshold of Economic Nexus is based on a combination of both sales revenue and/or transaction volume. This means that if you sell similar items in different states, you may need to pay sales tax in one but not the others. You’ll need to set up your shop’s Tax Policies to collect sales tax for each state you meet the threshold for. Note that these thresholds are not limited to sales made on Reverb — all sales channels should be taken into account when deciding which states will require you to collect sales tax.”
As for what impact the new tax rules may have, Kalt said the following: “Particularly for small-town musical instrument retailers whose local sales are limited by the total number of available customers in their town, the ability to access customers outside of their state through Reverb is crucial to the success of their business. We don’t foresee these sales tax law changes outweighing the benefits that come with that crucial out-of-state income. In Marketplace Facilitator States, Reverb will handle sales tax collection on behalf of our customers. Economic Nexus States will require additional work, but the majority of our sellers will not meet individual state thresholds and those who do will have Reverb as an added resource as we navigate these changes.”
For more information, visit https://reverb.com/news/what-reverb-sellers-need-to-know-about-new-sales-tax-rules.