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How does agent handle sales tax (or VAT) when charging sellers a fee to offer digital goods via on-line marketplace with numerous hosted servers?

Full Question: We plan to create a digital goods marketplace (downloadable digital files and subscription content) which will be used by 3rd party sellers and their end-customers (both individual consumers and companies). We would act as an Agent who charges a fee (%) for providing the marketplace infrastructure service (hosting their content, e-commerce capabilities, blog). We do not sell the digital goods ourselves and we do not own the content/files sold by the sellers.... We will clearly state in our Terms that all sales tax/VAT collection is the responsibility of the sellers. Our company is in CA and our online marketplace will be hosted with a hosting company which is also located in CA. Note that the hosting company may have their servers in various locations globally for faster content delivery. We do not own any equipment in these hosting facilities, we would just buy standard managed server services from the hosting company to host the online marketplace.... Would we have a sales tax liability for the service fees we collect from our registered sellers, in our nexus states for US sellers in such states and other global locations like EU for offshore sellers in those states who mandate local VAT type tax collection?

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Answer:

Diane Yetter photoThe first step that you need to do is determine where your company will have nexus. It will clearly have nexus in your home state - CA and potentially in other states based on the activities. States where you directly or indirectly have presence through people or property are likely to claim you have nexus. This can include if you pay commissions for referrals. It isn't clear if you will have locations outside of CA and we could talk with you about the other activities that may create nexus. Depending on your contract relationship with your marketplace vendors - you may be creating nexus for them. It isn't clear to me when your fee applies and that will be relevant. In terms of whether your charges are taxable, the services you describe that the fee covers is taxable in some states - but not CA. So, the first step is really determining if you have nexus outside of CA. We would also want to review your contracts to be sure what the fee would be considered by the states. If you need further assistance with this matter, please feel free to contact us directly.

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