Marketplace Facilitator Laws by State

If you sell on a marketplace like Amazon, Walmart, or eBay then chances are good that the marketplace collects and remits sales tax on your behalf. 

This article will explain what e-commerce sellers need to know about marketplace facilitator sales tax and what states require it. We’ll also dive into why marketplace facilitators are important and why you should consider an automated sales tax solution for all your reporting requirements.

Marketplace Facilitator Tax Laws by State

A marketplace facilitator (AKA a marketplace provider) is the owner or operator of a physical or online marketplace who “facilitates” the sale of products or services by a third-party seller.

The table below lists each state’s marketplace facilitator law and when it went into effect. Note that "threshold" in this case means how many sales or how much in sales a marketplace has to facilitate before they are subject to the state’s marketplace facilitator sales tax law.

Marketplace Facilitator Tax: Complete Guide

We’ve created a comprehensive marketplace facilitator guide so you can learn everything you need to know. This includes what a marketplace facilitator is, why it came to be, when marketplaces need to collect sales tax, and the pros and cons of marketplace facilitator laws.

What Is a Marketplace Facilitator?

A marketplace facilitator generally handles listing products and accepting payments for goods and services but may also handle storage and shipping of the third-party seller’s products. 

Amazon FBA is an example of a marketplace facilitator. It allows third-party sellers to list products on its site and even stores sellers’ inventory in its system of Amazon fulfillment centers. Amazon FBA takes payments and ships the products to the end customer through its fulfillment network.

The Reasoning Behind Marketplace Facilitator Laws

In the past, online retailers – even those who only sold on marketplaces – were on their own when it came to collecting sales tax. 

Instead of collecting sales tax on third-party sellers’ behalf, marketplaces provided sellers with a way to collect sales tax on their own via the marketplace. The seller was then responsible for filing sales tax returns and remitting sales tax collected to the state(s) where they had sales tax nexus.

Then came the South Dakota v. Wayfair Supreme Court decision on June 21, 2018. To make a long story short, this SCOTUS judgment allowed states to require that marketplaces, and not third-party marketplace sellers, collect sales tax on sales made through their platforms. 

This was (mostly) a relief for small and medium e-commerce businesses, who before often had to deal with collecting, reporting and filing sales tax from multiple marketplaces. 

States adopted their own marketplace facilitator laws over the next handful of years. The last state with a sales tax, Missouri, finally enacted their marketplace facilitator law on January 1, 2023. Now all forty-six states (plus Washington DC) with a sales tax also require that marketplaces collect and remit sales tax on behalf of their third-party sellers.

When Do Marketplaces Need to Collect Sales Tax?

In the US, major marketplaces are generally now required to collect and remit sales tax on behalf of third-party sellers. 

But keep in mind that states are allowed to define “marketplace facilitator” and set their own thresholds for when a marketplace facilitator is required to collect sales tax on behalf of a third-party seller. 

Some states require that all marketplace facilitators collect and remit sales tax on behalf of their platform’s third-party sellers. Other states set a sales threshold that a marketplace has to surpass before being required to collect sales tax on behalf of third-party sellers. A very small online marketplace may not be required to collect sales tax on behalf of third-party sellers.

Marketplace Facilitator Law Example

Here’s Florida’s marketplace facilitator statute language:

“A marketplace provider…physical presence in this state or who is making or facilitating through a marketplace a substantial number of remote sales.” 

Florida further defines “a substantial number of remote sales” as:

“Any number of taxable remote sales in the previous calendar year in which the sum of the sales prices… exceeded $100,000.”

To sum up, a marketplace facilitator (like Amazon, Walmart, or an even smaller marketplace) is required to collect sales tax on behalf of third-party sellers on sales made into Florida as long as that marketplace facilitator’s sales volume exceeded $100,000 in the previous calendar year.

The Pros and Cons of Marketplace Facilitators Collecting Sales Tax

As discussed, marketplaces collecting sales tax on behalf of third-party sellers is generally a good thing for e-commerce sellers. 

The pros of marketplace facilitator sales tax for online sellers include: 

• Worrying less about setting up accurate sales tax collection on multiple channels.
• No longer constrained by simplistic marketplace sales tax collection engines that force you to collect too little or too much in sales tax.
• Depending on the state where you are based, small businesses that only sell on marketplaces may not have to deal with sales tax at all.

But one thing marketplace facilitator sales tax laws did not do is eliminate an e-commerce seller’s requirements to collect sales tax on non-marketplace sales.

The cons of marketplace facilitator sales tax for e-commerce sellers include:

• E-commerce sellers are still required to collect sales tax on non-marketplace sales, such as in-person sales and sales through their non-marketplace online store(s).
• Marketplace sales count toward economic nexus thresholds in many states.
• Most states still require you to report your marketplace sales and sales tax collected and file sales tax returns.
• Sales tax reporting filing gets exponentially more complicated when you have to break out which sales were via a marketplace and which were not.

While marketplace facilitators collecting and remitting sales tax has helped smaller sellers, it has made filing and reporting sales tax even more complicated for multichannel and growing sellers.

Marketplace Facilitator Laws: Conclusion

Marketplace facilitator laws differ by state and have different threshold amounts that must be hit for marketplaces like Amazon to collect and remit sales tax on your behalf. However, just because these marketplaces collect sales tax does not mean that they are collecting and remitting the correct amount to meet all your tax obligations.

Using a sales and use tax compliance software like Zamp helps ensure you are paying the correct amount of tax every time. This software can also track nexus thresholds, help you register in new states, and file your taxes to the appropriate tax authorities.