Our primary motivation for implementing a comprehensive sales tax system is to help races stay in compliance with their state laws. This has reached a higher level of urgency for all registration and ticket companies over the past year as states have passed “Marketplace” laws.
These laws target larger entities like Amazon, Wayfair, RunSignup and even much smaller registration companies as a means to collect the tax from the end merchant. This means states can pursue both the marketplace and races to collect sales tax. By the beginning of 2020 there will be 35 states that will require the collection of sales tax.
Not having sales tax collected puts merchants and the marketplace in jeopardy of owing back taxes or incorrectly filing. As one race operator recently found out, this can add up to Hundreds of Thousands of Dollars. Similarly it could cost a registration provider even more in legal defense and pursuing races to pay the late tax, while also potentially being liable for paying the tax.
In many ways this coming release will help races, many of whom are too small to figure out how to comply with the complex network of state and local sales tax. A complex example of what taxes could be owed illustrates the point:
Person living in State A signs up for a triathlon in State B, and purchases an extra shirt to send to an address in State C. State A might collect tax on the USAT Annual Membership, State B might collect tax on the race fee, and State C might collect tax on the extra shirt. And a poor race has to figure that out for 50 states if they are a large race with many out of state participants.
As you can see, this is best implemented by an advanced technology vendor. But even we need help, which is why we have hired two tax consulting firms as well as are implementing a third party tax calculation software component. These will likely cost RunSignup over $100,000 per year on an ongoing basis. We will be absorbing this cost and not raising our pricing, but will be charging processing fees on the sales tax.
When our software is released later in August, RunSignup will be calculating tax in the 35 Marketplace states as well as collecting the sales tax and filing all of the reports and payments at the state and local level. We will also offer a service that a race will have access to in the other 15 states (5 of which have no sales tax). That service will accurately calculate the sales tax and add it to the checkout cart and pay the race the sales tax, which the race will then be responsible for filing and paying with the appropriate states.
We expect a lot of confusion and statements of “But I don’t owe tax!”, because that is what we saw at our Symposium when we held sessions on this topic. We have hired two separate tax consulting firms to give us guidance, and we are taking input in the form of links to statutes and rulings on a per state or local basis as these laws are constantly changing and somewhat open to interpretation. We will make updates when appropriate, however in marketplace states we will be forcing all races to comply.
Some race operators may feel this is unfair, but it is the new set of marketplace laws as set out in an increasing number of states (our tax advisors estimate that all 45 states that collect sales tax will enforce a marketplace law by the end of next year). Support of sales tax collection will vary by registration and ticket vendor in terms of when they will implement. We are in the process of sharing all of the information we are collecting with other registration vendors so that we all share the same information and there is some consistency.
We will continue to write blogs about the complex topic covering the many different aspects over the coming weeks to try to educate the race and nonprofit community. Sales tax will also be a big part of our 2020 Symposiums in January and July as we try to provide education on these important topics.
7 thoughts on “Sales Tax and Marketplace States”
Does this effect 501 c 3 non profits that do Races?
It depends upon the state. See our other posts and webinars for more details.