Liability Relief

A marketplace facilitator or remote seller may seek liability relief for a failure to pay the correct amount of transaction privilege tax (TPT).  The department may also waive penalties and interest as liability relief if reasonable cause exists and taxes were paid by the marketplace facilitator or remote seller during the timeframe in which relief is being sought. 

To obtain liability relief, the marketplace facilitator or remote seller must act in good faith.  “Good faith” means acting with honesty and with no knowledge of circumstances that would render the marketplace facilitator or remote seller ineligible for liability relief.  Additionally, where a marketplace facilitator or remote seller previously obtained liability relief for the same type of errors, the department may grant relief where, under the circumstances, is reasonable.  The department will consider such factors as whether the marketplace facilitator knew or should have known the information provided by a marketplace seller was incorrect, or if applicable, how many times the marketplace facilitator had already obtained liability relief based on the same type of errors or inaccurate information. 

 

Marketplace Facilitator

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A marketplace facilitator may qualify for liability relief for failing to pay the correct amount of TPT in relation to a marketplace seller’s sales in two situations:

  1. The failure to pay is due to incorrect information provided to the marketplace facilitator by the marketplace seller, and the facilitator and seller are not affiliated persons; or
  2. The failure to pay is due to an error other than the sourcing of the sale (i.e., the determination of the jurisdictions whose taxes will apply to the sale) and the marketplace facilitator and the marketplace seller are not affiliated persons.

The liability relief for Situation 2 may not exceed the following:

  1. For calendar year 2019, 5% of the total tax due on taxable Arizona sales facilitated by the marketplace facilitator on behalf of a marketplace seller.
  2. For calendar year 2020, 3% of the total tax due on taxable Arizona sales facilitated by the marketplace facilitator on behalf of a marketplace seller.
  3. For calendar year 2021 and each calendar year thereafter, 0%.

 

In each case, the marketplace facilitator bears the burden of proving its qualification for liability relief to the department.

A marketplace facilitator’s liability relief limitations are applied in relation to the total Arizona tax liability of all the marketplace sellers selling on the marketplace facilitator’s marketplace. A marketplace facilitator cannot seek liability relief on its sales or the sales of its affiliates.

 

 

Remote Seller

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A remote seller may qualify for liability relief for failing to pay the correct amount of transaction privilege tax, provided the error is not sourcing-related. The liability relief provided in this subsection may not exceed the following:

  1. For calendar year 2019, 5% of the total tax due on its taxable Arizona sales.
  2. For calendar year 2020, 3% of the total tax due on its taxable Arizona sales.
  3. For calendar year 2021 and each calendar year thereafter, 0%.

 

 

Examples

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  1. ABC, a marketplace facilitator, applies for liability relief based on a filing error in 2019 because it applied a lower tax rate to one of its marketplace seller’s sales. The total tax due for all taxable Arizona sales of all ABC’s marketplace sellers in 2019 is $63,000. Liability relief may be granted to ABC for up to $3,150 (5% × 63,000).
  2. Assume the same facts as in Example 1. Besides sales that ABC facilitated on behalf of third-party marketplace sellers, ABC also made its sales through its marketplace. These direct sales by ABC resulted in an actual combined tax liability of $6,300 that ABC erroneously reported to the department as $5,000. ABC will not be granted liability relief for errors resulting from these direct sales.
  3. In 2020, ABC, a marketplace facilitator, files an amended return based on incorrect information provided to it by one of its marketplace sellers. ABC applies for liability relief as soon as possible after discovering the error. The evidence shows that ABC acted in good faith and could not have known that the information was incorrect. This constitutes an error under A.R.S. § 42-5043(A)(1). This statutory provision authorizes the department to grant relief, and there is no limitation on the amount of relief that can be granted. The department may grant relief that is reasonable under the circumstances.
  4. In 2020, XYZ, a remote seller, deducted amounts for sales that it thought were exempt, but after further research, realized were in fact taxable. XYZ’s total tax due from its gross sales for the period under consideration is $31,500. Pursuant to A.R.S. § 42-5043(B)(2), liability relief for XYZ’s non-sourcing related error may be granted in any amount up to $945 (3% × $31,500).
  5. In 2022, ABC marketplace facilitator files an amended return based on incorrect information provided to it by one of its marketplace sellers. In the same year, ABC also makes a filing error by using the incorrect tax rate on a sale. ABC applies for liability relief in both instances. The department may grant liability relief under A.R.S. § 42-5043(A)(1) for errors resulting from the incorrect information provided to ABC by its seller. However, no liability relief is available for ABC’s filing error, pursuant to A.R.S. § 42-5043(B).