We’ve recently had more and more clients launching their own marketplaces. As a marketplace facilitator, they usually have a lot of questions surrounding sales tax. Internet sales tax is complicated. Furthermore, handling it as a marketplace facilitator can be confusing. But we are here to help!
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 the marketplace facilitator, not its 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 a marketplace).
Where do marketplace facilitators collect sales tax?
So, where do marketplace facilitators need to worry about sales tax?
Physical Presence Creates Nexus
First, they should start with any state in which they have physical presence. Physical presence includes:
- Where they have owners/employees
- Where the business entity is registered
- Where inventory is stored, and so on.
In these states, the marketplace facilitator is legally obligated to register, collect, and remit sales tax for all sales being shipped to that state on their marketplace.
Economic Nexus
Second, marketplace facilitators need to watch their sales volume in each state. If they have a high volume of sales into a state, they 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.)
Once a marketplace reaches those numbers in one state, they should check that state’s economic thresholds. This rule is called economic nexus, and states have differing thresholds and requirements. You can learn more and see the thresholds in our in-depth sales tax guide.
It is important to note that the physical presence of a marketplace’s sellers does not need to be factored in. If you have a seller operating in California, this does not mean the marketplace facilitator has a physical presence there. (Unless the marketplace facilitator itself actually has employees there, or some other physical presence.)
Do sellers on a marketplace ever need to collect sales tax?
If a marketplace facilitator does not have physical presence or meet the economic threshold in a state, it does not need to worry about sales tax in that state. Instead, the obligation moves to the 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. (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.)
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, you can watch our Masterclass – “The Uncomplicated Truth About Sales Tax for Your eCommerce Business”. Or, learn more about our services here.
To learn more about sales tax for ecommerce businesses, click here for all our sales tax articles and here for our YouTube playlist.
