Estimated reading time: 3 minutes and 15 seconds
We’ve recently had more and more clients launching their own marketplaces.
If you are a marketplace facilitator, you probably have a lot of questions surrounding sales tax.
That’s not surprising since internet sales tax is complicated.
Furthermore, handling it as a marketplace facilitator can be confusing. But we are here to help!
Key Takeaways
- Marketplace facilitator laws simplify compliance for sellers. These laws make marketplaces responsible for sales tax, simplifying compliance for states.
- Physical and economic nexus determine where you have sales tax liability. Marketplaces must collect sales tax where they have a physical presence or meet sales thresholds, though rules vary by state.
- The seller may still have responsibility to collect and remit sales tax. If a marketplace doesn’t meet a state’s tax requirements, individual sellers may still be responsible if they have nexus.
Table of Contents
- What are marketplace facilitator laws?
- Where do marketplace facilitators collect sales tax?
- Do sellers on a marketplace ever need to collect sales tax?
- How to get help with your sales tax
Also, you can watch our video here:
What are Marketplace Facilitator Laws?
During the last few years, every state with sales tax laws has enacted marketplace facilitator laws.
These laws place the liability for registering, collecting, and remitting sales tax on you as the marketplace facilitator, not on your sellers.
It’s much easier for states to deal with one entity (the marketplace facilitator) than with many, many thousands of entities (all the sellers on your marketplace).
Where do Marketplace Facilitators Collect Sales Tax?
So, where do you need to manage sales tax as a marketplace facilitator?
Physical Presence Creates Nexus
First, you should start with any state where you have physical presence.
Physical presence includes:
- Where you have owners/employees
- Where your business entity is registered
- Where your inventory is stored, and so on.
In these states, you as the marketplace facilitator is legally obligated to register, collect, and remit sales tax for all sales being shipped to that state on your marketplace.
Economic Nexus
Second, marketplace facilitators need to watch your sales volume in each state.
If you have a high volume of sales into a state, you may be liable for sales tax.
A general rule of thumb is 200 transactions or $100K in revenue for the current or previous calendar year. (Be aware, though, that this is only accurate for a few states. Many states have different thresholds.)
This rule is called economic nexus, and states have differing thresholds and requirements.
Download our 10 Steps to Ensure Sales Tax Doesn’t Burn Down Your eCommerce Business for a complete and up-to-date list of all the economic thresholds by state, as well as all the steps you need to follow to be sales tax compliant.
Be aware of state thresholds and watch carefully as you approach them so you know when to register for a sales tax permit.
It is important to note that the physical presence of your sellers does not need to be factored in.
If you have a seller operating in California, this does not mean you has a physical presence there. (Unless your marketplace actually has employees there, or some other physical presence.)
Do Sellers on a Marketplace Need to Collect Sales Tax?
If your marketplace does not have physical presence or meet the economic threshold in a state, you do not need to worry about sales tax in that state.
Instead, the obligation moves to your sellers.
If a seller has physical presence or meets the economic threshold in that state (due to sales on other platforms plus on the marketplace), the seller is liable for sales tax.
Note: This really only applies to smaller marketplaces, since larger marketplaces usually hit the thresholds so early in the year that marketplace facilitator laws come into play almost immediately.
How to Get Help with Sales Tax
We know internet sales tax can be a pain. If you are still worried about sales tax or you need help with the registration, collection, and remission of sales tax, reach out.
Our team of sales tax experts is happy to handle this for you, leaving you free to focus on growing your business.
