Marketplace tax automation software - Avalara

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Sales tax compliance for marketplace facilitators and sellers

Video: With a rise in online marketplace selling comes new sales tax obligations.

BENEFITS

Streamline marketplace sales tax compliance

Manage nexus obligations

Get alerts when you’re nearing nexus thresholds in different states so you can apply for licenses and register your business.

Automate form distribution

Automatically send 1099 and W-9 forms to your sellers to comply with reduced sales thresholds.

Determine product taxability

Calculate more accurate sales tax for your customers based on what type of marketplace you are (physical, digital, or service) and the states they’re selling into.

Features

Key marketplace considerations

What makes a marketplace facilitator?

The exact definition of a marketplace facilitator varies from state to state. But generally, a marketplace facilitator is a company that:

Owns, operates, or controls a physical or electronic marketplace
Contracts with marketplace sellers to facilitate the sale of their products or services
Directly or indirectly collects the payment from the purchaser and transmits all or part of the payment to the marketplace seller

In other words, the marketplace facilitator connects vendors with their customers and handles the transactions, including tax collection.

What type of marketplace are you?

Each type of marketplace has unique and often complex tax considerations that they must follow.

Physical goods marketplaces primarily sell tangible physical products — and unlike digital marketplaces or service marketplaces, they often have to warehouse or drop ship items to customers, creating unexpected sales tax obligations.
Digital goods marketplaces specialize in the sale of digital products and digital content. It’s important for businesses to know whether digital goods are taxable in the jurisdictions they sell in.
On-demand services marketplaces, or service marketplaces, sell services to customers rather than actual goods. Services range from delivery to rideshares, childcare, education, and more. Understanding the taxability for your type of service is key to maintaining tax compliance.
Social commerce marketplaces sell products directly through social media platforms or apps, blending e-commerce with social networking. Their unique nature presents sales tax compliance challenges including determining tax obligations across multiple jurisdictions and compliance with real-time transactions.

CUSTOMER STORIES

See what our customers have to say

“We ship products around the world. Being able to offer the added convenience of collecting those taxes and duties up front is a nice enhancement for that customer set.”

—Jason Macatangay 
CFO, Threadless

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“If you’re not compliant, it can get real ugly, real fast. Avalara, in that regard, helps me sleep better at night.”

—Jason Heckel
Senior Director of Tax, Zillow Group

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Products in your solution

Avalara AvaTax

Apply more accurate, regularly updated tax rates based on location, taxability, legislation, and more.

Avalara Returns

Offload the hassle of returns preparation, filing, remittance, and notice management.

Avalara Exemption Certificate Management (ECM)

Process, collect, and access exemption documents.

Avalara AvaTax Cross-Border

Calculate or estimate real-time customs duties and import taxes at checkout.

Avalara AvaTax for Hospitality

Ideal for online travel agencies and larger hospitality businesses. AvaTax for Hospitality helps deliver instant, location-specific tax calculations.

Avalara 1099 & W-9

Simplify the way you manage forms 1099, W-9, W-2, 1095, and more to improve compliance.

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Frequently Asked Questions

Frequently asked questions

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 generally 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, which 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 it is 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.

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 took 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, with very limited exceptions. 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.

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Sales and use tax solutions for online marketplaces