An online marketplace is a website or platform that enables the buying and selling of goods and services between customers and merchants without them having to leave the site.
You’re using an online marketplace whenever you shop on Amazon Marketplace, Walmart Marketplace, or Etsy. You may even sell goods on an online marketplace for your business.
If that’s the case, then it’s important to understand the sales tax implications of where you’re selling and how it’s sold.
There are four key conditions a marketplace must meet to qualify as a marketplace facilitator:
- The platform lists or advertises goods for sale by marketplace sellers.
- It enables payments between sellers and customers.
- Customers pay the marketplace directly, who then pays the marketplace seller.
- The marketplace is compensated for providing this service.
This facilitation of payments is a key factor in determining what qualifies as a marketplace facilitator and what doesn’t. If the marketplace collects the payment from your customer, remits that money back to you, and gets paid in the process, then they are likely a marketplace facilitator.
Knowing whether or not you sell on an ecommerce platform or through a marketplace facilitator can be a crucial distinction for small businesses. This is especially true when it comes to sales tax.
Online platforms that collect payments from customers for the marketplace sellers, and then deliver those payments to the sellers while being paid for their service qualify as marketplace facilitators.
Current examples of marketplace platforms include Amazon Marketplace, Walmart Marketplace, Etsy, eBay, and Wayfair. Other examples include online marketplaces like Alibaba Marketplace and Newegg Marketplace.
If you sell online, ask yourself if your customer is directly paying you, or your marketplace. If it’s the latter, then there’s a good chance you’re selling through a marketplace facilitator.
No. While Shopify is an ecommerce platform, it is not considered a marketplace facilitator. Shopify provides the platform for your business to sell online. However, it doesn’t collect your customers’ payments, so it doesn’t qualify as a marketplace facilitator.
This means that other ecommerce platforms such as BigCommerce, WooCommerce, and Magento are not marketplace facilitators and do not collect sales tax on your behalf.
Avalara solutions can integrate with your existing ecommerce platform to automate sales tax collection.
Yes. Online delivery services like DoorDash, Grubhub, Uber Eats, and Postmates are considered marketplace facilitators in many states.
With these delivery services, the customer is often paying the service directly for the order, rather than the restaurant. The delivery service then gives that money back to the restaurant, and receives a payment for providing the service.
However, there are states that still aren’t sure how to handle online delivery services. Some states count them as marketplace facilitators. Other states don’t consider delivery services facilitators.
Marketplace facilitator laws are laws that require a marketplace facilitator to collect and remit sales tax for its sellers.
That means that if you sell through a marketplace facilitator, like Amazon Marketplace, then the marketplace is required to collect and pay sales tax for you.
All states that have a state sales and use tax, plus Puerto Rico and Washington, D.C., have some kind of marketplace facilitator law.
That means most states require marketplace facilitators to collect sales tax for you and pay it to the government.
Missouri is the most recent state to enact a marketplace facilitator law. The marketplace facilitator law for Missouri will take effect starting January 1, 2023.
Remember that marketplace facilitator laws may vary even within the same state (like Alaska). Our state-by-state guide to marketplace facilitator laws can help you learn the rules for your state.
Yes. In most cases you must make sure you’re charging sales tax for all goods you sell, even on an online marketplace.
The good news is that, in cases where your marketplace is counted as a marketplace facilitator, the marketplace collects and remits sales tax for you.
Yes. If your marketplace qualifies as a marketplace facilitator then it is legally obligated to collect and remit sales tax on your behalf.
Yes. Remember that marketplace facilitator laws only require the marketplace to collect and remit sales tax for you. It’s still your responsibility to file sales tax returns on time based on your filing schedule.
There may also be additional obligations for your business, so be sure to check with your specific marketplace.
If you’re an international merchant making sales into the U.S., then you may need to charge sales tax. Even if you’re an international marketplace seller, you can still trigger economic nexus in different states.
The good news is that you likely don’t need to charge sales tax on transactions you make through a marketplace facilitator. Like in the U.S., the marketplace facilitator is obligated to collect and remit sales tax to the appropriate states on your behalf.
Not sure if you owe sales tax in a state? A free sales tax risk assessment can give you a better idea of where you might owe.
