A marketplace facilitator is a marketplace that lists and sells products on behalf of a 3rd party seller
Amazon, Walmart, and eBay are some well known online marketplaces
Due to the South Dakota v. Wayfair Supreme Court ruling, online marketplaces are now generally required to collect and remit sales tax on behalf of the 3rd party sellers who sell via their websites
Marketplace facilitator laws have both pros and cons for e-commerce sellers. These laws lower the sales tax burden on small, marketplace-only sellers, but have made sales tax compliance for multichannel online sellers more confusing
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 when this means you do anddon’t have to collect sales and use tax.
What is a marketplace facilitator?
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 3rd party seller. A marketplace facilitator generally handles listing products and accepting payments for goods and services, but may also handle storage and shipping of the 3rd party seller’s products.
Amazon FBA is an example of a marketplace facilitator. They allow 3rd party sellers to list products on their site and even store sellers’ inventory in their system of Amazon fulfillment centers. They take payments and ship the products to the end customer through their fulfillment network.
And in states with marketplace facilitator sales tax laws, they are responsible for collecting and remitting sales tax on taxable retail sales on behalf of 3rd party sellers.
When do marketplaces need to collect sales tax on behalf of 3rd party sellers?
In the US, major marketplaces are generally now required to collect and remit sales tax on behalf of 3rd party sellers.
But keep in mind that states are allowed to set their own definition of “marketplace facilitator” and set their own thresholds for when a marketplace facilitator is required to collect sales tax on behalf of a 3rd party seller.
Some states require that all marketplace facilitators collect and remit sales tax on behalf of their platform’s 3rd party sellers. Other states set a sales threshold that a marketplace has to surpass before being required to collect sales tax on behalf of 3rd party sellers. A very small online marketplace may not be required to collect sales tax on behalf of 3rd party sellers.
A common threshold is $100,000 in sales in a state over the period of a year.
“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 it up, a marketplace facilitator (like an Amazon, Walmart or an even smaller marketplace) is required to collect sales tax on behalf of 3rd party sellers on sales made into Florida as long as that marketplace facilitator’s sales volume exceeded $100,000 in the previous calendar year.
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 3rd 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 3rd 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 3rd party sellers.
E-Commerce Sellers: The Pros and Cons of Marketplace Facilitators Collecting Sales Tax
As I mentioned, marketplaces collecting sales tax on behalf of 3rd 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 hamstrung by simplistic marketplace sales tax collection engines that forced you to collect too little or too much in sales tax
Depending on the state where you are based, small businesses who 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 sellers’s requirements to collect sales tax on non-marketplace sales.
The cons of marketplace facilitator sales tax for e-commerce sellers include:
E-commerce seller 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 Sales Tax Laws by State
This table lists each state’s marketplace facilitator law and when it went into effect. Use this chart to determine when your marketplace started collecting sales tax on your behalf.
If you own an online marketplace, use this chart to determine when and if you are required to collect sales tax on behalf of 3rd party sellers who use your platform.
“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.
Common Questions about Marketplace Facilitator Sales Tax
Do sales made through a marketplace facilitator count toward my economic nexus sales tax threshold?
That depends. Some states do count marketplace sales as part of your sales activity and some do not. We recommended checking with the individual state to determine whether you need to count your marketplace sales toward your economic nexus.
I only sell on marketplaces. Do I still need a sales tax permit?
This depends on the state. In most cases, an e-commerce seller or business is required to have a sales tax permit in your home state regardless if you only sell on marketplaces. But your other nexus states may not require that you register for a sales tax permit if all of your sales are made via marketplaces that collect and remit sales tax on your behalf. We recommended checking with the individual state to determine whether you need to count your marketplace sales toward your economic nexus.
I only sell on marketplaces. Do I still need to file a sales tax return(s)?
In general, yes. If a state requires that you hold a valid sales tax permit, they require you to file sales tax returns. This is true even if all they require is that you inform them that a marketplace collected and remitted sales tax on your behalf. This may mean that you file a “zero return” which is a sales tax return that simply lets the state know that your business is still active even if you have no sales tax to report or remit.
Does Amazon remit sales tax for sellers?
Yes, Amazon, Walmart, Facebook Marketplace, eBay, Etsy and the other major online marketplaces now collect and remit sales tax on behalf of 3rd party sellers in every state with a marketplace facilitator law.
As of January 1, 2023 every US state with sales tax also has an active marketplace facilitator law in place, meaning these major marketplaces now collect and remit sales tax on your behalf in every state where that is necessary