Following the 2018 South Dakota vs. Wayfair U.S. Supreme Court decision that eliminated the physical presence standard for sales tax nexus, not only have most states enacted economic nexus legislation, but many have also started requiring marketplace facilitators to collect and remit sales tax on behalf of the third party sellers.
A marketplace facilitator (or MPF) is a business or organization that contracts with third parties (“sellers”) to sell goods or services on its platform, facilitating the sales that arise (large examples include Amazon or Etsy). These companies facilitate sales of goods or services between a seller and a buyer – but generally, the MPF does not take title to or even carry the inventory.
Because of the complexity that can arise for these marketplaces, we often share articles detailing the most up-to-date marketplace facilitator laws. You can read some of our past articles here and here. Today, we share what the new INFORM Consumers Act means for marketplace facilitators.
What Is The INFORM Consumers Act?
The INFORM Consumers Act, which was signed into law on December 29, 2022, is designed to reduce and ideally eliminate counterfeit sales. It was signed into law as a last-minute addition to the Consolidated Appropriations Act of 2023, a bill that authorizes federal government spending for the upcoming year. The consumers act applies to online marketplaces and requires them to collect, verify and make available to buyers certain identification information for ‘high-volume third-party sellers’ on their platform (sellers with more than 200 transactions and $5,000 in revenue in a 12-month period). The Consumers Act requirements go into effect on June 27, 2023.
What Do Online Marketplaces Need To Implement To Comply With The INFORM Consumers Act?
Online marketplaces must implement policies, procedures and controls to comply with the following new requirements:
- Collect and verify information from high-volume sellers at least once a year, including:
- Bank account number or name of the payee (if no bank account number).
- Contact information.
- Seller is a business? Copy of a valid, government-issued record or tax document with the business name and physical address.
- Seller is an individual? Name of the individual.
- An individual acting on behalf of an individual seller? Copy of valid government-issued identification for the individual.
- Business tax identification number or taxpayer identification number.
- Email address and phone number of the seller.
- Disclose certain high-volume sellers (sellers with an aggregate total of $20,000 or more in annual gross revenues on the marketplace) information to buyers, including:
- Seller’s full name, physical address and contact information to consumers either on the product listing page or another consumer communication.
- Identify whether the seller used a different seller to supply the product to the consumer upon purchase.
- There is a listed exception for high-volume marketplace sellers working out of their residences. These sellers must provide the country and state where they reside, but don’t need to provide the specific street address. The marketplace needs to let consumers know there is no business address and provide a way for consumers to contact the seller.
- Provide clear and conspicuous consumer reporting options on high-volume seller pages.
- Comply with data privacy and security requirements.
What Are The Consequences Of Non-Compliance For Marketplace Facilitators And High-Volume Sellers?
If a high-volume seller does not comply with these new requirements, the online marketplace can suspend sales activity on their account. The marketplace needs to alert the seller with written or electronic notice and give the seller 10 days to comply. If the marketplace fails to enforce the INFORM Consumers Act, they are subject to civil or criminal penalties, which could exceed $46,000 per violation. While some online marketplaces may already comply with some of these requirements, many will likely need to implement new measures, so we recommend reaching out to a team of sales tax professionals, like our team at Miles Consulting, to ensure you are ready in June.
Do You Need Help Keeping Up With Marketplace Facilitator Laws?
If you find yourself with questions regarding marketplace facilitation under the INFORM Consumers Act, or sales tax in general, please give our team of multistate tax experts a call! We would be happy to help you and clarify any tax issues you are trying to navigate. Contact us today.
