Since the pandemic, online shopping has grown in popularity and set a new trend in marketing, leading to a rise in ecommerce businesses. This also includes online marketplaces. So if you sell on websites like Amazon, eBay, Facebook, and Instagram, you are selling through an online marketplace, and those brands are the facilitators.
As a retailer, facilitating third-party sales of goods and services through those marketplaces, it’s easy to understand the role of marketplace facilitators. Marketplace facilitators promote sales by listing your products, tracking your sales, and sometimes helping with shipments.
In summary, its primary function is to facilitate retail sales for businesses. But as rules change to adapt ot new marketing trends, even sales made online are now subject to sales tax regulation laws.
This is where marketplace facilitator laws get complicated. In this in-depth guide, we’ll thoroughly explain marketplace facilitator rules, along with everything else you need to know for sales tax compliance as a marketplace seller.
Key Takeaways
- Marketplace facilitator laws are set in place to secure sales tax collection from online sellers making taxable sales through digital marketing platforms.
- The threshold for marketplace facilitator laws varies across states, but usually mirrors the economic nexus threshold of a state.
- Marketplace facilitators are online marketplaces such as Walmart, Amazon, eBay, and Etsy. Other shopping platforms are also recognized as marketplace facilitators, such as TikTok and Facebook.
- Not all marketplaces are facilitators that collect sales tax. Generally, marketplace facilitators with an established economic nexus are required to collect and remit. Marketplace facilitators reach the threshold based on the sales of all its sellers.
- Sales made outside the jurisdiction without marketplace facilitator laws are your responsibility.
What are Marketplace Facilitator Laws?
The USA has implemented marketplace facilitator laws so that the states can simplify sales tax collection by collecting it from one entity rather than several sellers. For instance, if you sell your products through Etsy or eBay and have a sales tax nexus, you are not responsible for collecting and remitting tax on your sales. Instead, the concerned marketplace facilitator (i.e., eBay or Etsy) is accountable and will do it on your behalf. Marketplace facilitators are responsible for gathering and paying sales tax to the state where they do business or have customers. The laws enable states to collect sales tax from consumers while simplifying the tax collection process for states and businesses. Facilitator laws include legislation surrounding the sales tax responsibilities of marketplace facilitators. They aim to increase sales tax compliance while reducing the time consumption and complexity of sales tax collection.Do All Marketplace Facilitators Collect Sales Tax?
Though the law states that marketplace facilitators must shoulder the tax burden for online sellers, this rule primarily applies to major marketplace facilitators that correspondingly have an economic nexus threshold in a state. For example:- If Amazon has not established an economic nexus in Kentucky, then Amazon does not have to collect sales tax on behalf of its third-party vendors.
- Meanwhile, if eBay has an economic nexus in Nevada, then eBay must collect and remit sales tax on behalf of its third-party vendors selling to customers in Nevada.
How do Marketplace Facilitator Laws Affect Sellers?
States have different legislatures about what constitutes a marketplace facilitator and when the marketplace facilitator tax applies to your business. Taxes are easier for states and businesses under marketplace facilitator laws. However, understanding how it affects your business can get confusing. Although the marketplace facilitator is responsible for collecting and remitting sales tax, you may still have to do the following:- Register for sales tax once you trigger an economic nexus when selling outside of the marketplace (e.g., through your website or selling on non-marketplace platforms)
- If you reach an economic nexus threshold through marketplace sales, some states still require you to register for a sales tax account. However, the tax burden from sales inside the marketplace is still the facilitator’s sole responsibility.
- File a zero return or an informational return to simply notify the states why your business is not collecting sales tax when you only sell in marketplaces.
- If the state allows this option, register for a non-reporting tax status when you solely sell in marketplaces that collect and remit sales tax.
- Collect, file, and remit sales tax as a registered seller with an economic nexus selling taxable goods outside of the marketplace.
Marketplace Facilitator Tax Laws in Different States
While the general concept behind marketplace facilitator laws is straightforward, their complexity lies in their variation across states. Every state sets a different threshold for marketplace sellers. Refer to the table below for each state’s marketplace sales threshold.
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Marketplace Facilitator Rules Explained
With varying thresholds across states, online retailers may wonder: Why were marketplace facilitator rules created? In 2018 and 2019, a case that changed the sales tax laws across states took place. That lawsuit is known as the South Dakota v. Wayfair case. The court ruled in favor of the state of South Dakota. From then on, even sellers without a physical presence are now required to comply with sales tax regulations once they meet a specific threshold in a state. This rule is called the economic nexus law. But what does this have to do with marketplace facilitator rules? Marketplace facilitator rules typically go hand-in-hand with economic nexus rules. That’s because marketplace sellers are also liable to economic nexus laws. As briefly mentioned in the prior sections, some states may still require marketplace sellers to register for sales tax once they reach a particular state’s economic nexus threshold. Marketplace thresholds generally mirror economic nexus thresholds in a state. The standard criteria you may encounter across states are:- 200 total transactions in a state and/or
- $100,000 total sales revenue in a state
US Marketplace Sales Tax Compliance
In the world of ecommerce businesses and sales tax, compliance is not as straightforward as it seems for multichannel sellers. Those who sell outside of marketplaces are more vulnerable to compliance risks as opposed to those who solely sell inside marketplaces. However, this doesn’t mean that exclusive marketplace sellers have no compliance risks as well. While facilitators are primarily in charge of collecting and remitting, some states still require sellers to file a return, with or without sales tax to report. This is often referred to as a zero-return across states. Without filing a zero return, states may penalize you for failing to file a return, incurring financial fees that can hurt your business. Alternatively, states like Texas allow you to register as a non-reporting tax account.Multichannel Sellers: Nexus Reminder
Marketplace sellers must actively keep track of their sales tax nexus. Your sales through marketplace facilitators should count towards your economic nexus threshold in a state. For example, if you’re selling on Amazon and your total revenue in Wyoming has reached $100,000, you now have an economic nexus in that state. Therefore, you’re required to register for sales tax. However, the collection still goes through your marketplace facilitator. But if you sell outside of the marketplace, such as Shopify, then you are responsible for collecting and remitting the sales tax for those transactions to comply with economic nexus laws. To summarize:- Marketplace facilitators honor the marketplace facilitator laws.
- Sellers must still comply with economic nexus laws, so selling outside of marketplaces means you must collect and remit sales tax by yourself.
Which States Do Not Have Marketplace Facilitator Laws?
Out of 50, all 46 states, including Alaska, plus 1 jurisdiction (Washington D.C) have implemented marketplace facilitator laws. The remaining 4 states that do not have marketplace facilitator laws are Delaware, Montana, New Hampshire, and Oregon. These 4 states are members of the NOMAD states, of which Alaska is also a part. The NOMAD states do not have sales tax. However, Alaska does have a local sales tax, which is why its taxing jurisdictions are able to implement marketplace facilitator laws.How to Comply with Marketplace Facilitator Laws
To comply with marketplace facilitator laws, the process for marketplace sellers is simple. Here are 7 essential tips for navigating US marketplace facilitator laws:- Check the sales tax on your products – Even if the burden falls on the marketplace facilitator, there’s no harm in verifying whether the facilitator is applying the right sales tax rates on your products. In case of inaccuracies, contact your facilitator.
- Verify your sales tax obligations – Some states still require you to file a zero return even if you exclusively sell in online marketplaces. While the facilitator collects and remits the sales tax, filing a return is still a separate, individual compliance responsibility.
- Know that not all marketplaces are facilitators that collect sales tax – For example, Shopify is not considered a marketplace facilitator. Despite hosting products for third-party sellers, it is still categorized differently from marketplace facilitators like eBay or Amazon. Therefore, sellers on Shopify still need to manually file and remit sales tax on their own. However, Shopify also offers automatic filing features, which may charge fees for each return.
- Identify which marketplace facilitators collect – Most marketplace facilitators that collect and remit sales tax on behalf of their third-party vendors are entities with a pre-established sales tax or economic nexus in a state. Without a nexus, these facilitators are not required to comply with marketplace facilitator laws.
- Register your business after meeting a threshold – Some states still require you to register your business as long as you meet a specific threshold, even if your sales are solely made through online marketplaces.
- Keep track of all your sales, including sales outside marketplaces – Laws are subject to change at any time. Always keep records for future evidence of why sales tax was or was not collected. This can save your business during sales tax audits.
- Understand the penalties of non-compliance – One way to ensure compliance is to understand the negative impacts of non-compliance penalties. Financial fees typically apply to offenses such as failing to register or file a zero return. At times, failing to declare your non-reporting tax status could also lead to penalties.
Know your Nexus as a Marketplace Seller
While newer nexus laws have been in place since 2018 or 2019, not all marketplace sellers are made aware of this rule. Those who have just recently started their business or moved to the U.S. may unknowingly establish a nexus through the years. So, how can you figure out your nexus as a marketplace seller? And what should you do if you’ve had an economic nexus for a long time? Figuring out your nexus as a Marketplace Seller:- Option A: First, trace your business’s history, from the beginning you started making sales. You may also reach out to your facilitator to gain access to your online sales records. After that, identify whether you have reached the threshold or not in the state where you’re selling. In some states, you only have to check the total revenue or transaction count in the previous or the current calendar year to know whether you have an active economic nexus or not.
- Option B: Use a sales tax software for ecommerce businesses. For example, using TaxHero’s services allows you to get a nexus analysis report, helping you figure out which states your business has a nexus in.
- Option C: Get in touch with a sales tax professional. Sometimes, back taxes can be too much to handle on your own. You don’t always have to do it on your own; you can reach out to experts such as TaxHero to take care of the tedious work for you.
How to Register for Sales Tax as a Marketplace Seller
If you have determined that registration is required for you as a marketplace seller, know that registration steps vary depending on each state. However, the standard steps are simple.- STEP 1: Prepare IDs, documents, and crucial business information.
- STEP 2: Go to the state website where you need to register.
- STEP 3: Search for the “Apply for a Sales Tax Permit” among the options. A permit can also be referred to as a license or other terms in some states.
- STEP 4: Follow through the prompts until your registration is submitted for approval.
- STEP 5: Wait for your sales tax permit or license.
The 2026 Trend: Why States are Dropping the 200-Transaction Rule
Just as economic nexus laws continue to change, the same applies to marketplace sales tax rules. States constantly strategize for the sake of improved compliance and a wider tax-coverage if the state’s revenue requires. For example, more states have removed the 200-transaction threshold in their economic nexus laws. As marketplace facilitator laws often mirror economic nexus rules, this also applies to marketplace sales thresholds. Marketplace sellers should stay updated with sales tax developments, whether they have tax obligations or not. Visit this blog whenever you need the latest news on marketplace facilitator laws in the US!Need Help with Marketplace Facilitator Tax Laws in your State?
It is important to know the details about marketplace facilitator laws in your state to ensure compliance with all legal requirements. Book a call with TaxHero and let experts take care of your state’s latest compliance laws and requirements.Frequently Asked Questions
1. Is Amazon a marketplace facilitator?+
Yes, Amazon is a marketplace facilitator. Amazon is responsible for collecting and remitting sales tax on taxable goods and services from its third-party vendors. However, it is not responsible for filing other tax returns, which may involve declaring your sales.
2. Is TikTok a marketplace facilitator?+
Yes, TikTok is considered a marketplace facilitator in the US. Online sellers can use TikTok Shop to facilitate sales by listing and promoting their products. However, TikTok may still have limited options when it comes to servicing buyers seeking tax-free purchases using specific exemptions.
3. Do I need to pay taxes if I sell on Shopify?+
Yes, selling on Shopify means you are responsible for collecting and remitting sales tax on your goods. That’s because Shopify is not deemed a marketplace facilitator in the US. Instead, it’s recognized as an ecommerce platform provider or a SaaS company.
Learn more → Does Shopify Collect Sales Tax?
4. Why is Shopify not a marketplace facilitator?+
Shopify is not a marketplace facilitator, as it is an ecommerce platform provided instead of a marketplace facilitator. The distinction lies in their functionalities, such as:
- Full Control: Online sellers on Shopify are given access to Shopify tools that help them build their brand pages. Meanwhile, marketing facilitators set up your store for you, and each sale is branded as a purchase from the facilitator instead of a direct purchase from your store.
- Transaction Authority: Most marketplace facilitators are in charge of managing sales facilitated through their platform, such as applying the costs and providing the shipping options. Meanwhile, Shopify sellers handle each transaction directly, including shipment management.
- Individual Brand vs. Marketplace: In marketplace facilitator platforms, you can find numerous brands in one product search. In Shopify, sellers use a unique and specific storefront that helps their brand become identified as an individual store.
5. What is a marketplace facilitator order?+
A marketplace facilitator order is a transaction processed by facilitators such as Etsy, eBay, or Amazon, allowing buyers to connect with sellers by acting as the bridge between the client and the vendor. Orders made through marketplaces