Good news for e-commerce retailers! As of January 1, 2023, every US state with a sales tax now also has marketplace facilitator laws. Why is a law good news? This means that now major online marketplaces like Amazon, Walmart, eBay, and Etsy are required to collect and remit sales tax on behalf of online sellers.
This is helpful, especially to retailers who only sell on online marketplaces. For retailers who sell on a combination of online marketplaces and their own online store (via something like Shopify, WooCommerce, Magento, etc.) this can make collecting sales tax a little more complicated.
Let’s dig in.
“Marketplace Facilitators” Defined
As with most things sales tax-related, each state makes their own rules and laws when it comes to what is a marketplace facilitator. However, in most cases, a marketplace facilitator is a business that does the following on behalf of a 3rd party seller:
- Lists goods and/or services for sale
- Takes payment
- Collects receipts
- Sometimes assists in shipments (ex: Amazon FBA)
Most state marketplace facilitator laws consider that any online marketplace that makes more than $100,000 in sales to buyers in that state in a year must collect sales tax on behalf of 3rd party sellers who utilize the platform. This means that most of the major platforms we’ve all heard of (like Amazon or eBay) are now required to collect and remit sales tax on behalf of 3rd party sellers.
How did we get to marketplace facilitator laws?
To understand why marketplace facilitator laws are so useful to online sellers, it’s important to understand how sales tax laws worked for e-commerce merchants in the past.
In short, they didn’t.
The first sales tax laws were passed during the Great Depression in the 1930s. Needless to say, state governments at the time weren’t anticipating future consumers being able to “Buy it Now” with one tap on the supercomputer each of us keeps in our pockets.
With the rise of e-commerce starting in the late 1990s, sales tax became a wild west. Since each state makes their own sales tax rules and laws, an e-commerce seller often found herself trying to decipher whether or not she had sales tax nexus and she was supposed to collect sales tax in each state. For the most part, an online seller was only required to register for a sales tax permit and collect sales tax in a state if they had a location, employee, or inventory there.
Services like Amazon FBA muddied the waters. FBA started storing inventory in their warehouses all over the country. This meant that Amazon FBA sellers now had inventory in multiple locations and were required to register and collect sales tax in multiple states. This became a huge administrative hassle, especially considering that each state’s rules and laws were different.
Then came the South Dakota v. Wayfair Supreme Court ruling. Long story short, that ruling allowed states to require that out-of-state e-commerce retailers collect sales tax from buyers in the state. The big news story from this ruling was “economic nexus.” (If you’re unclear on economic nexus, I recommend reading our article.)
But it also allowed for states to pass “marketplace facilitator laws.” And these laws require that online marketplaces like Amazon and Walmart become the seller of record and collect sales tax on behalf of the 3rd party sellers who use their platforms.
What do marketplace facilitator laws mean for online sellers?
Some e-commerce sellers only sell on 3rd party platforms like Amazon or eBay. The advent of marketplace facilitator laws helped these retailers immensely. Though they still may be required to hold a sales tax permit, at least in their home states, they no longer have to worry about setting up sales tax collection, collecting sales tax, and remitting it back to the state through a sales tax filing.
However, for everybody else, marketplace facilitator laws have introduced an element of confusion into sales tax compliance.
These laws only apply to online marketplaces. If you sell on your own online store, such as through Shopify, or if you sell in other ways, such as at a brick and mortar store or at trade conferences or craft fairs, then you’re still responsible for collecting and remitting sales tax.
Marketplace Facilitator Sales Tax Examples
Jack lives in Pennsylvania and sells his antique finds on eBay only. His contractor in North Carolina helps him with marketing and customer service. Before marketplace facilitator laws, Jack was required to hold sales tax permits in both Pennsylvania and North Carolina. He needed to collect sales tax on each sale he made to buyers in those two states, and remit sales tax to the state periodically. But now that both PA and NC have marketplace facilitator laws, eBay collects and remits sales tax on Jack’s behalf. (Note: Most states require that in-state sellers still hold a sales tax permit even if they only sell on marketplaces. So in this case Jack may still be required to register for and hold a valid Pennsylvania sales tax permit even if he no longer has any sales tax to remit.)
Jill also lives in Pennsylvania, sells her antique finds on eBay, and has help from a contractor in North Carolina. But she also has a store on Shopify where she sells baseball cards. Now that marketplace facilitator laws have passed, she no longer has to worry about collecting and remitting sales tax from her PA and NC buyers on her eBay sales. But, she is still required to collect and remit sales tax from her PA and NC buyers on her Shopify sales. Further, Pennsylvania and North Carolina will likely want to know her total sales to buyers in the state (both eBay and Shopify) even though she doesn’t legally have to deal with eBay sales tax.
As you can see, selling through a non-marketplace online store has already made Jill’s life much more complicated. And she has a fairly uncomplicated sales tax footprint with nexus in only two states.
For multichannel e-commerce merchants with sales tax nexus in multiple states, marketplace facilitator laws can be helpful, but also cause a great deal of confusion.
E-Commerce Sellers’ Quick Guide to Marketplace Facilitator Laws
Here are a few important things to consider when it comes to marketplace facilitator laws:
- Marketplace facilitator laws only apply to marketplaces. You are still required to collect sales tax from buyers in your nexus states on all non-marketplace sales.
- Very small, specialty or niche marketplaces may not be subject to marketplace facilitator laws in every state. If you sell on one of these, be sure to find out if they are responsible for sales tax.
- You are likely still required to hold a sales tax permit in your home state, even if you only sell on marketplaces. If you are unsure, we recommend checking with the state’s department of revenue.
- Your marketplace sales will most likely count toward your economic nexus threshold. Again, this depends on the state. Just because Amazon or Etsy takes care of sales tax compliance on your behalf doesn’t mean that your sales on those marketplaces don’t count. Sales that exceed a state’s economic nexus threshold, even if only made via an online marketplace, may give you economic sales tax nexus in a new state. If you are unsure whether you have an economic nexus in a state, contact HOST for assistance.
- Some states still require that, if your business has nexus in that state, you hold a sales tax permit and file sales tax returns even if you only sell on marketplaces. We recommend checking with all of your nexus states before assuming that you are not required to hold a permit or file. Contact us at HOST for customized guidance on whether or not you can cancel your sales tax permit.