At Poshmark’s annual fashion conference in October, the online marketplace’s sellers were still mulling the Supreme Court’s decision in South Dakota v. Wayfair Inc., which cleared the way for states to start collecting sales tax for online orders even if the seller didn’t have a physical presence in the state.
Large retailers with significant online sales around the country had already begun to update and modify their sales tax software, but smaller sellers without that kind of administrative infrastructure were still trying to figure out how to proceed. “They were asking, ‘What are you going to do in terms of supporting us?’” said Poshmark chief executive officer Manish Chandra in an interview with WWD.
On Thursday, the company answered them with a new online service labeled Posh Remit, which calculates, collects and remits state and local taxes for sales made through its platform. That includes the 46 states that collect such taxes — a handful of states including Oregon, Montana and New Hampshire do not impose state sales taxes.
Posh Remit joins Poshmark’s host of services that facilitate sales and deliveries on its platform, such as Posh Post, which provides sellers with pre-paid shipping labels, and Posh Pay, which helps process customers’ payments to sellers. The company, which already charges sellers a 20 percent fee for each sale on the platform, will not charge sellers extra for the new service. But buyers might see a “small fee,” Chandra said.
Poshmark’s move comes at a time when Wayfair’s actual impact on marketplaces like Amazon, eBay and Etsy, where third-party sellers hawk their wares, is still hazy. But in recent months, a number of states have begun to enact laws to hold marketplaces accountable for collecting taxes on sales made through their platforms. Around a dozen states, including New Jersey, Pennsylvania and Iowa, currently impose such rules, and many observers expect more to follow.
“You can look at marketplace facilitator rules as the whip that is forcing you to do it, or an enabler that is allowing you to do something you wanted to do in the first place,” Chandra said. “We think of ourselves in the latter group.”
As of January, nearly 40 states have also enacted so-called economic nexus laws or regulations, according to an analysis by Ernst & Young LLP posted on the National Retail Federation web site. Those rules, which Wayfair directly addressed, generally require out-of-state sellers with significant sales in those states to collect sales taxes. Some states, including South Dakota, had such rules in place even before Wayfair. South Dakota in particular had sought to impose sales taxes on out-of-state sellers that sold than $100,000 of goods or services annually or conducted at least 200 transactions for goods and services sold to buyers in the state, even if they lacked a physical presence there.
For states like South Dakota, which do not impose a state income tax, the stakes were high. It had estimated that it lost up to $58 million in revenues annually because of sales taxes it couldn’t collect.
Since Wayfair, a number of marketplace facilitator rules have gone into effect, including in Alabama, Iowa and South Dakota. Such rules may operate in tandem with economic nexus rules, and sometimes mirror them. In Iowa, for instance, marketplace facilitators must collect sales taxes in Iowa if they either facilitate at least $100,000 of sales or 200 or more transactions in the state annually, regardless of how much each of its third-party sellers sold in the state, according to the Iowa department of revenue.
“States [that] have enacted marketplace laws generally put the burden on the marketplace to collect for their small sellers,” said Rachelle Bernstein, a tax lobbyist at the National Retail Federation.
Amazon calculates, collects and remits taxes for sales on products shipped to states where such laws are in place, according to its web site. It also has voluntary collection agreements with some localities, whereas a few others don’t require marketplaces to collect and remit sales taxes, and some cities have asked Amazon not to collect such taxes, according to a spokesman for Amazon.
“The Supreme Court set a framework for what an economic nexus law should look like and how collecting taxes should look like so it does not overly burden sellers,” said Cody Edwards, a tax attorney at Dickinson Mackaman Tyler & Hagen PC. “But the decision did not resolve a lot of issues.”