South Dakota Imposes Marketplace Facilitator Provisions

On September 12, 2018, Gov. Daugaard signed Senate Bill 2, which contains nexus provisions for marketplace providers. Effective March 1, 2019, marketplace providers are required to obtain a sales tax license and collect and remit sales tax on all sales of tangible personal property, products transferred electronically, or services for delivery into South Dakota that the marketplace provider makes or facilitates for a marketplace seller if the marketplace provider:

• Is a seller subject to §10-64-2, which imposes sales tax collection requirements on remote sellers meeting the $100,000 or 200 transactions threshold;
• Facilitates the sales of at least one marketplace seller that is subject to §10-64-2; or
• Facilitates the sales of two or more marketplace sellers that, when the sales are combined, are subject to §10-64-2, even if the marketplace sellers are not separately or individually subject to §10-64-2.

A marketplace provider that fails to collect or remit sales tax under these provisions may be relieved of liability if the failure was due to incorrect or insufficient information provided to the marketplace provider by a marketplace seller. The relief may not exceed 5% of the total sales tax due on all sales into South Dakota that are facilitated by a marketplace provider for marketplace sellers in a calendar year.

A marketplace provider is any person that facilitates a sale for a marketplace seller through a marketplace by:

1. Offering for sale by the marketplace seller, by any means, tangible personal property, products transferred electronically, or services for delivery into this state; and
2. Directly, or indirectly through any agreement or arrangement with third parties, collecting payment from a purchaser and transmitting the payment to the marketplace seller, regardless of whether the person receives compensation or other consideration in exchange for facilitating the sale or providing any other service

These provisions do not apply to any sales where the marketplace provider is affiliated with the marketplace seller. A marketplace provider and a marketplace seller are affiliated if:

• Either owns more than 5% of the other; or
• Both are subject to the control of a common entity that owns more than 5% of each.

No marketplace provider is required to collect or remit sales tax under Senate Bill 2 on any sale made before March 1, 2019.

In addition, Gov. Dennis Daugaard signed legislation (Senate Bill 1) that removes the imposition of an injunction against the state’s collection of sales tax on remote sales. Effective November 1, 2018, South Dakota is allowed to enforce sales tax collection from remote sellers who meet the economic nexus threshold of $100,000 in sales or 200 separate sales transactions in the previous or current calendar year. This step was necessary as until the courts resolve the remand from the U.S. Supreme Court, South Dakota couldn’t begin enforcement against any remote seller. This legislative change removes the stay except for the parties to the case. To see our previous news item on South Dakota’s economic nexus legislation, click here. (Senate Bill 1, Senate Bill 2)

UPDATE: The South Dakota Department of Revenue released an informational bulletin about the responsibilities of marketplace providers in preparation for the March 1, 2019 effective date. Read the February 2019 Marketplace Bulletin for more information.