StubHub, Inc. (StubHub), the world’s largest online marketplace for purchasing and selling tickets, filed its response brief to the Wisconsin Court of Appeals (Court) continuing its protest of a $16M audit assessment from the Wisconsin Department of Revenue (Department). The assessment includes a staggering $6M in interest and $2M in non-filing penalties. StubHub maintains that it is not liable for sales tax related to sales of tickets for admission to recreational events, e.g. football games and concerts, made through its platform as it is not a “person selling” as defined by Wisconsin statute.
“Because StubHub looked like a seller, walked like a seller, and talked like a seller, the Wisconsin Department of Revenue (DOR) determined that StubHub was, in fact, a taxable seller ...”
online marketplace
From 2008 to 2013, StubHub operated an “online marketplace” through which tickets to various recreational events could be bought and sold by individuals or businesses, and added its own fees, including delivery charges, to the final price listed by ticket sellers. StubHub did not buy and resell tickets itself, but was responsible for collecting payment from the buyers, taking out its commission and fees, and then paying the balance to the seller. In terms of delivery, StubHub would facilitate physical delivery of tickets by providing sellers with mailing labels to ship tickets to the buyers.
Additionally, StubHub provided all of its customers a “FanProtect Guarantee,” which promised buyers three things: (1) buyers would receive tickets in time for the event, (2) the tickets would be valid for entry, and (3) the tickets would be what the buyer actually ordered.
On audit, the Department determined that StubHub made an estimated $153 million in taxable sales from sales of tickets to recreational events in Wisconsin. However, StubHub had not filed any sales tax returns or paid any sales tax. Once the assessment of over $16 million was issued, StubHub appealed.
Person selling
The primary issue in this case is whether StubHub is considered a “person selling” taxable tickets, or merely an online marketplace that sellers and buyers can utilize to purchase tickets. Notably, during the period 2008-2013, Wisconsin had not yet enacted any “marketplace facilitator” laws to impose tax on the facilitation of retail sales by such marketplace facilitators. Thus, the Court must decide whether StubHub was a “person selling” taxable admissions to recreational events under Wisconsin statute.
To support its assessment, the Department sets forth examples of things StubHub did as a seller to “consummate the sales of admissions,” including creating and maintaining the online platform, collecting the money from the purchaser, retaining commission and fees and then remitting the balance of the sale to the seller, delivering the tickets, and providing the “FanProtect Guarantee.”
Rebuking the Department’s classification as a “seller, “ StubHub asserts it was not a seller or a retailer. In support its argument that it is not responsible for sales tax, StubHub points out that tickets sold through its online marketplace were owned and listed by third-party sellers, the sellers could determine the listing price, and StubHub did not own or have title to any of the tickets. StubHub argues that the law imposing tax on “persons selling” admissions is ambiguous as to whether a facilitator like itself is included.
Best offense good defense
While marketplace facilitator tax laws are currently generally accepted, previous laws were, at best, ambiguous as to how marketplace facilitators are treated for sales tax purposes. Accordingly, it’s critical for businesses to understand both their past and present sales tax obligations, and how the laws evolved.
As tried and true, the best offense is a good defense. Thus, be proactive and confirm your audit defense strategy includes a strong and defensible position, complete with supporting documentation. No need to go it alone, add a backup starter to your team to strengthen your defense!