After receiving a $3.4 million sales tax assessment, StockX, LLC (StockX), a Michigan-based sneaker resale platform, filed a complaint with the Michigan Court of Claims alleging that the Michigan Treasury Department (Department) incorrectly assessed it $3.4 million in sales tax, penalties and interest for the years 2017-2019. The company asserts that it was wrongfully classified as a “retailer” required to remit tax on sales instead of being recognized as a “marketplace facilitator.” Prior to the landmark Wayfair decision in 2019 and the following law changes, marketplace facilitators were not responsible for collecting and remitting sales tax.
“... prior to January 1, 2020, there was ‘not statutory authority defining ‘marketplace facilitator’ for purposes of assigning responsibility to collect and remit . . .’”
Background
StockX is an online marketplace that allows third-party sellers to list and sell their products on the site. Similar to sites like ebay.com, third-party sellers on StockX can list items, negotiate offers with buyers, and complete transactions. StockX also verifies purchases on behalf of the buyer to ensure that the product is authentic and undamaged. While third-party sellers can list several different products such as electronics, comic book and clothing, StockX is best-known as a platform used for reselling popular, high-end sneakers.
On January 1, 2020, Michigan’s marketplace facilitator legislation (the “Marketplace Acts”) went into effect. Prior to this legislation, only “retailers” were required to collect and remit sales tax in Michigan. “Retailers” are defined as those “engaged in the business of making sales at retail.” However, as set forth in the Marketplace Acts, the definition of “retailer” was expanded to include “marketplace facilitators … regardless of whether the marketplace facilitator makes only facilitated sales.” Accordingly, platforms that facilitated transactions between buyers and sellers using the platform, such as Amazon, Etsy, and ebay, now had a requirement to collect and remit Michigan sales tax.
Retailer v. Marketplace Facilitator
StockX maintains that prior to the Marketplace Acts it did not have an obligation to collect and remit sales tax because it was not a “retailer.” StockX is essentially contending that it is a marketplace facilitator, but the definition of a marketplace facilitator and the law which obligated marketplace facilitators to collect and remit tax did not yet exist.
Nonetheless, the Department assessed approximately $3.4M in sales tax, penalties and interest against StockX maintaining that during the audit period of 2017-2019 StockX was a “retailer” under Michigan law. A “retailer” is defined as a business that is engaged in “making sales at retail,” and is further defined as “transferring the ownership of tangible personal property for consideration.” In its complaint, StockX points out that “[The Department] does not dispute that prior to January 1, 2020, there was ‘not statutory authority defining ‘marketplace facilitator’ for purposes of assigning responsibility to collect and remit…”
StockX argues that it was not a retailer, but instead a “facilitator, linking a buyer and seller.” In support of its position, StockX emphasizes that it did not sell its own tangible personal property, the third-party sellers on their site retained title and possession of the products listed on StockX’s website, and StockX only has possession of the product after a sale is complete for verification purposes. StockX does not have ownership of the products on its site, and highlights that the transfer of ownership in exchange for consideration occurs between its third-party sellers and buyers. As such, StockX claims it is not a “retailer” and the assessment should be cancelled in its entirety.
Takeaway
StockX’s case focuses attention on the importance of understanding tax obligations as a business. Additionally, this issue aptly displays the concept that tax law is regularly in a catch-up situation with advances in technology and changes to sales transactions. It is crucial to stay proactive in your tax strategy and thereby ahead of any potential sales tax obligations.
For help with understanding your unique sales tax strategy, contact Libertas today.