Does a nonprofit marketplace platform have to collect Missouri use tax on donated-goods sales made for other charities?

Plain-English summary

The Missouri Department of Revenue ruled that a nonprofit's online marketplace platform does not owe Missouri use tax on the sales it facilitates for other charities -- and that, as a result, the platform doesn't even need to register with Missouri as a marketplace facilitator.

Applicant is a California-based 501(c)(3) nonprofit that runs an online marketplace exclusively for members of similar 501(c)(3) organizations. On the platform, those member organizations list and auction donated merchandise -- mostly used consumer goods -- and buyers bid on the items or buy them outright. All the proceeds go toward the member charities' missions. Applicant earns revenue both from its own direct sales on the platform and from fees it charges member sellers for using the platform. Once states began adopting marketplace facilitator laws, Applicant registered with Missouri and began collecting vendor's use tax on all marketplace sales starting January 1, 2020.

The Department's analysis worked in two steps. First, it confirmed that Applicant does meet Missouri's broad statutory definition of "marketplace facilitator" under Section 144.752, RSMo, because it facilitates retail sales by listing and advertising taxable tangible personal property for its marketplace sellers. Under Section 144.752.2(1), RSMo, a marketplace facilitator that meets this definition would ordinarily have to register with the Department and collect and remit use tax on sales made through its platform on behalf of sellers, regardless of whether those sellers would have had to collect the tax themselves.

But the Department then looked at who is actually selling through Applicant's platform: 501(c)(3) organizations acting in their charitable capacity. Section 144.615.3, RSMo, exempts from use tax any property whose sale would be exempt from sales tax under Section 144.030.2 -- and Section 144.030.2(19), RSMo, exempts "all sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities." Because Applicant's marketplace facilitates sales for charitable organizations acting in their charitable capacity, those underlying sales are exempt from use tax.

That exemption also answered the second question the Department addressed: even though Applicant technically meets the definition of "marketplace facilitator" under Sections 144.752.1 and 144.752.2, RSMo, it does not have to register with Missouri, because it will not actually be remitting any tax -- the sales themselves are exempt.

What this means for you

Nonprofit marketplace and donation-platform operators

If your organization operates an online marketplace or auction platform exclusively (or primarily) for other 501(c)(3) charities to sell donated goods, this ruling indicates the underlying sales may be exempt from Missouri use tax, and your platform may not need to register as a marketplace facilitator at all -- even though platforms generally meet that broad statutory definition. The key facts here are that the sellers using the platform are themselves charitable organizations, acting in their charitable capacity, and that all proceeds support their charitable missions. If your platform serves a mix of charitable and non-charitable (for-profit) sellers, this reasoning would likely apply only to the charitable sellers' sales, not to the rest.

Charitable organizations selling donated goods online

If your 501(c)(3) organization sells donated merchandise through an online marketplace as part of your charitable activities, this ruling confirms that those sales can qualify for Missouri's sales/use tax exemption for charitable organizations under Section 144.030.2(19), RSMo, even when sold through a third-party marketplace platform rather than directly. The exemption depends on the sales being made "in their religious, charitable or educational functions and activities" -- so keep records showing that sale proceeds go toward your charitable mission.

Common questions

Q: Does operating a marketplace platform automatically mean you have to collect Missouri use tax?
A: Not necessarily. You may still meet Missouri's definition of "marketplace facilitator" under Section 144.752, RSMo, and that definition alone would normally trigger a registration and collection obligation under Section 144.752.2(1), RSMo. But if the underlying sales facilitated through your platform are themselves tax-exempt -- as with sales made on behalf of charitable organizations in their charitable capacity -- there is no tax to collect or remit.

Q: Why did the Department say Applicant meets the definition of "marketplace facilitator" if it doesn't owe any tax?
A: Meeting the definition and owing tax are two separate questions. Applicant satisfies Section 144.752's broad definition because it lists and advertises taxable property for sale on behalf of its member sellers. But whether tax is actually due depends on whether the underlying sale is exempt. Here, because the sellers are 501(c)(3) organizations selling in their charitable capacity, Section 144.615.3, RSMo, and Section 144.030.2(19), RSMo, exempt those sales from use tax.

Q: If the sales are exempt, why would the platform ever need to register as a marketplace facilitator?
A: Registration exists to support collecting and remitting tax. Since Applicant's marketplace sales are exempt and no tax will actually be remitted, the Department concluded there was no need for Applicant to register with Missouri as a marketplace facilitator, even though it meets the statutory definition.

Q: Does this exemption cover all sales made through a marketplace platform, or just the charitable ones?
A: The ruling's reasoning is tied specifically to sales made by or on behalf of charitable organizations acting in their charitable capacity, per Section 144.030.2(19), RSMo. A marketplace facilitator that also lists sales by non-charitable sellers would still need to evaluate those sales separately under the general marketplace facilitator collection rules.

Q: Can another marketplace platform rely on this ruling?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain unchanged. Another platform should confirm its facts match those described here -- including that its sellers are charitable organizations acting in their charitable capacity -- and consult a tax professional before relying on this result.

Citations and references

Statutes and regulations:

• Section 144.752, RSMo (definition of "marketplace facilitator")
• Section 144.752.2(1), RSMo (marketplace facilitator registration and collection requirement, effective January 1, 2023)
• Section 144.615.3, RSMo (use tax exemption incorporating Section 144.030.2 sales tax exemptions)
• Section 144.030.2(19), RSMo (sales tax exemption for sales by or to religious and charitable organizations in their charitable functions and activities)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8263

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated June 7, 2023.

The facts as presented in your letter ruling request are summarized as follows:

Applicant is a California based 26 USC section 501(c)(3) nonprofit organization ("501(c)(3) organization(s)") and marketplace facilitator. Applicant provides a marketplace platform exclusively to members of similar 501(c)(3) organizations. Applicant's revenue is inclusive of their own sales as a seller on the platform as well as fees collected from third-party sellers for use of the platform.

On the platform, the third-party sellers create listings and conduct auctions of donated merchandise. Buyers may place bids on listed items or purchase the items outright. The sales primarily consist of used consumer goods or donated items. All proceeds from sales on the marketplace platform go toward the mission of the member 501(c)(3) organizations.

As states adopted marketplace facilitator laws across the United States, Applicant registered and began collecting Missouri vendors use tax for all marketplace sales effective January 1, 2020.

ISSUE 1 :

Are the sales on Applicant's marketplace platform exempt from use tax?

RESPONSE 1 :

Yes. Sales on Applicant's marketplace platform are exempt from use tax.

Section 144.752, RSMo, provides the definition of Marketplace facilitator:

(1)   "Marketplace facilitator," a person that:

(a)   Facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller, in any forum, tangible personal property or services that are subject to tax under this chapter;

Applicant facilitates retail sales of tangible personal property in Missouri through the use of their marketplace platform.

Additionally, Section 144.752.2(1), RSMo, provides:

(1)    Beginning January 1, 2023, marketplace facilitators that engage in business activities within this state shall register with the department to collect and remit use tax, as applicable, on sales made through the marketplace facilitator's marketplace by or on behalf of a marketplace seller that are delivered into the state, whether by the marketplace facilitator or another person, and regardless of whether the marketplace seller for whom sales are facilitated possesses a retail sales license or would have been required to collect use tax had the sale not been facilitated by the marketplace facilitator.  Such retail sales shall include those made directly by the marketplace facilitator and shall also include those retail sales made by marketplace sellers through the marketplace facilitator's marketplace.  The collection and reporting requirements of this subsection shall not apply to retail sales other than those made through a marketplace facilitator's marketplace.  Nothing in this section shall be construed to limit or prohibit the ability of a marketplace facilitator and a marketplace seller to enter into agreements regarding the fulfillment of the requirements of this chapter.

Because the Applicant meets the definition of a marketplace facilitator, they must collect and remit use tax, as applicable, on sales made through their platform.

However, Applicant's marketplace is facilitating sales on behalf of 501(c)(3) organizations as part of their charitable activities.

Section 144.615.3, RSMo, specifically exempts from use tax:

Tangible personal property, the sale or other transfer of which, if made in this state, would be exempt from or not subject to the Missouri sales tax pursuant to the provisions of subsection 2 of section 144.030.

Section 144.030.2(19), RSMo, exempts from sales tax,

All sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities and all sales made by or to all elementary and secondary schools operated at public expense in their educational functions and activities

Since Applicant is facilitating sales for charitable organizations in their charitable capacity, they are exempt from use tax pursuant to section 144.615.3, RSMo's, inclusion of applicable sales tax exemptions.

ISSUE 2:

If Applicant's sales through its marketplace facilitator are exempt from tax, are they required to register with Missouri as a Marketplace Facilitator?

RESPONSE 2:

No. Applicant is not required to register with the Missouri Department of Revenue as a marketplace facilitator.

Although Applicant meets the definition of marketplace facilitator pursuant to section 144.752.1, RSMo, and section 144.752.2, RSMo, in this situation, Applicant is not required to register with the department, because they will not be remitting tax due to the exempt nature of the 501(c)(3) organizations.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford