California Adopts New Regulations to Clarify Marketplace Facilitator Responsibilities

Effective 8/28/2023, California has added additional language to its Code of Regulations to clarify which businesses have responsibilities under their marketplace facilitator laws.

The new rules include a detailed definition of a Marketplace Facilitator as any business that handles payment, fulfillment, or storage of products for sale, lists products and sets prices, takes orders, or provides customer service on behalf of a marketplace seller. Marketplace Facilitators also include businesses that transmit offers and acceptance of orders between buyers and sellers, operate the infrastructure of a marketplace website, or provide virtual currency to buyers to make payment to sellers. Marketplace Facilitators are not considered the sellers or facilitators of sales where their only involvement in the transaction is a link, advertisement, or direct referral of the seller to the purchaser. Delivery network companies that provide websites or applications that facilitate local deliveries and otherwise meet the definition of a marketplace facilitator can elect to be treated as a marketplace facilitator for sales and use tax purposes.

The code also now clarifies that all sales including taxable and nontaxable sales and sales made on behalf of marketplace sellers should be factored into a Marketplace Facilitator’s calculation of their economic nexus obligations. Marketplace sellers should also include sales made through a Marketplace Facilitator when calculating economic nexus.

Though the definition of marketplace facilitator in all states clearly includes well known online retail marketplaces, digital marketplaces, marketplaces for services, delivery apps and other smaller marketplaces can have trouble determining what their obligations are in states where broad definitions can create gray areas. In California and other states that have added detail to their definitions, the state’s administrators have taken steps to clarify how they expect marketplaces and sellers to collect tax and reduced the chance for companies operating in good faith to run into issues remaining compliant. (Cal. Code of Regs., Title 18, section 1684.5, Marketplace Sales, Cal. Dept. of Tax & Fee Admin. (8/28/23).)

Posted on September 13, 2023