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US Marketplace Facilitator Sales Tax Laws: everything you need to know
In this article
Sales tax laws for marketplace facilitators are quickly covering the United States, holding online marketplaces responsible for calculating, collecting, and remitting sales tax for transactions made on their site.
These new laws affect all the major players in e-Commerce: Amazon, eBay, Etsy, WalMart, and more. In fact, the laws potentially affect other third party services you use to sell your digital products or physical goods in the US. And ultimately, they affect your business, too.
This article is here to explain everything you need to know, including answers to following questions:
- What exactly is a “marketplace facilitator?”
- How do marketplace tax laws work?
- How do those laws affect you as a seller?
- Which US states have enacted such laws?
Let’s get down to business!
What is a marketplace facilitator?
As with anything in the US sales tax system, there’s no single or simple answer.
Definitions of a “marketplace” or “marketplace facilitator” vary among the states’ tax policies. There are elaborate definitions designed to cast a wide net and catch as many forms of the “online sales platform” as possible. A good example is Washington’s, who enforced this law early on and whose language many other states are copying.
“A marketplace facilitator is a business that does the following three activities:
- Contracts with sellers to facilitate the sale of a marketplace seller’s product through a marketplace for consideration.
- Engages, directly or indirectly, in transmitting or otherwise communicating the offer or acceptance between the buyer and seller. (This does not include merely advertising.)
- Does any of the following activities, directly or indirectly, with respect to the seller’s products:
- payment processing services
- fulfillment or storage services
- listing products for sale
- setting prices
- branding sales as those of the marketplace facilitator
- taking orders
- providing customer service
- accepting or assisting with returns or exchanges
There are more simple definitions, designed only to catch household names (Amazon, etc.) who bring in the big bucks. Here’s the language from the other Washington… DC:
“Marketplace facilitator’ means a person [or company] that provides a marketplace that lists, advertises, stores, or processes orders for retail sales subject to tax […] for sale by such marketplace sellers, and directly or indirectly collects payment from a purchaser and remits payment to a marketplace seller.”
And there are also special provisions, tacked onto some states’ policies, which hook online platforms for specific ways of selling or accepting payments. The main one so far is the special provision for virtual currencies. If a business allows customers to pay with virtual currency, that business is considered a marketplace. This includes obvious sites like Overstock.com, which lets buyers use BitCoin. But it also ensnares video games systems like PlayStation or Xbox, whose users purchase upgrades and other products through “credits.”
According to Bloomberg, at least 16 states have this virtual currency provision in place: Alabama, California, Idaho, Iowa, Massachusetts, Nevada, New Jersey, North Dakota, Ohio, Kentucky, Rhode Island, Utah, Vermont, Virginia, Washington, and West Virginia.
How do marketplace facilitator tax laws work?
Marketplace facilitator laws require businesses like Amazon and Etsy to collect and remit sales tax on behalf of their vendors, if one of the following is true:
- The marketplace facilitator has a physical presence in the state,
- Their marketplace sellers (vendors) have physical presence in the state, or
- Their collective, annual sales in the state surpass the sales tax registration threshold and they quality for economic nexus
If none of the above are true, marketplace facilitators do not have to bother with sales tax, but they may have to abide by use tax and the “Notice & Report” rules. This means they must notify buyers of their tax obligation and report the data to each state’s department of revenue.
All in all, it’s a whole lot more work for the big companies that are helping you sell your products.
The benefit for state governments
Ever since the Supreme Court’s Wayfair decision, state governments have been passing new sales tax legislation that applies to remote sales and online marketplaces. Why? The digital economy is booming; there’s a lot of potential tax revenue to bring in. Of course, it’s all about the Benjamins.
According to old definitions of US sales tax nexus, out-of-state sellers couldn’t be held accountable for local sales taxes. The states were missing out on that revenue. Then, with the post-Wayfair introduction of economic nexus, small online businesses still wouldn’t sell enough to hit nexus. The collective sales of these small businesses represented a big chunk of potential revenue. The states were still missing out.
So, the states turned their attention to the online marketplaces where all of the individual retailers actually sell their products to in-state customers. A marketplace would surely have physical nexus from a warehouse or fulfillment center. Or, when measured in total, it’s sales would surely hit the economic threshold.
And now the state governments can recoup tax revenue that was never available before.
Complications of the laws
As smooth as that little narrative sounded, the reality of these laws is a much rockier road. Here are just a couple of the complications that make it difficult for you (and me, and the marketplace facilitators, and probably even the Departments of Revenue) to understand exactly how the laws work.
- Marketplaces operate differently from each other. Amazon FBA is different from Etsy. Each marketplace has its own adaptations and processes to comply with the law, and each will have its own specific requirements of you, a seller.
- A single marketplace will operate differently across states, according to state laws. So once you know how Amazon FBA handles Idaho, it might be altered for Iowa. And then again for Texas. Here’s a telling excerpt from Etsy’s official rules: “These laws continue to be introduced in various states, creating a patchwork of requirements for us and our buyers and sellers. Because each state has their own set of rules and requirements, Etsy must make a determination about how to proceed on a case-by-case basis.”
All Marketplace Facilitator Laws by State
Finally, where in the US do these laws actually apply? Not everywhere, but new legislation is coming out nearly every month. We’ll keep this list updated so you always have a current report.
For now, states that have enacted marketplace facilitator tax laws include:
Alabama
Alabama’s law states that once a marketplace facilitator reaches over $250,000 in retail sales, it must register for the Simplified Sellers Use Tax (SSUT), which is a special scheme for remote sellers including marketplaces. Then the marketplace platforms must charge and collect this 8% SSUT on behalf of its third-party sellers.
Effective January 1, 2019
Alaska
Alaska’s law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Alaska in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Note: Unlike other US states, Alaska does not have a state-level sales tax. Instead, local jurisdictions are allowed to decide if they want to levy a sales tax.
Effective January 1, 2020
Arizona
Arizona’s law states that once a marketplace facilitator passes $100,000 in annual taxable sales, it must collect and remit Transaction Privilege Tax (TPT) on behalf of its sellers.
Note: Municipal license fees are waived for both remote sellers and online marketplace facilitators.
Effective October 1, 2019
Arkansas
Arkansas’ law states that if a remote marketplace facilitator makes more than $100,000 in sales or over 200 transactions in Arkansas in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
California
In California, a marketplace facilitator is generally responsible for collecting, reporting, and paying the tax on retail sales made through their marketplace – regardless of sales thresholds.
Effective October 1, 2019
Read California's official rules
Colorado
In Colorado, marketplace facilitator’s become responsible for collecting and remitting sales tax in the same year that their Colorado sales exceed $100,000.
Effective October 1, 2019
Read Colorado's official rules
Connecticut
Connecticut law requires states that once a marketplace facilitator reaches $250,000 in Connecticut sales in a twelve-month period, then it must collect and remit sales tax on behalf of its sellers.
Effective December 1, 2018
Read Connecticut's official rules
Florida
Florida’s law states that marketplace facilitators who make more than $100,000 in sales in the previous calendar year are required to collect and remit sales tax on behalf of their sellers.
Effective July 1, 2021
Georgia
Georgia law requires that marketplace facilitators with sales in excess of $100,000 in Georgia must collect and remit sales tax on behalf of their sellers.
Effective April 1, 2020
Hawaii
Hawaii’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or over 200 transactions in Hawaii in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective January 1, 2020
Idaho
Idaho law requires that if a remote marketplace facilitator makes more than $100,000 in sales in Idaho in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
Illinois
In Illinois, marketplace facilitators who generate $100,000 or more in sales, or have over 200 sales transactions, must get an Illinois retail sales tax permit and file sales tax returns on behalf of its sellers.
Effective January 1, 2020
Indiana
Indiana’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or over 200 transactions in Indiana in the previous or current calendar year – including sales that are not taxable or tax exempt – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
Iowa
Iowa’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or over 200 transactions in Iowa in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective January 1, 2019
Kansas
Kansas law requires that marketplace facilitators who conduct sales grossing more than $100,000 to buyers in the state of Kansas collect sales tax on behalf of third-party sellers.
Effective July 1, 2021
Kentucky
Kentucky law states that if a “marketplace provider” makes more than $100,000 in sales or over 200 transactions in Hawaii in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
Read Kentucky's official rules
Louisiana
Louisiana law requires that marketplace facilitators that make more than $100,000 in gross sales into Louisiana or more than 200 sales – in the prior or current calendar year – are required to collect and remit sales tax on behalf of their sellers.
Effective July 1, 2020
Read Louisiana’s official rules
Maine
Maine law requires that marketplace facilitators collect sales tax on behalf of third-party sellers if the platform exceeds $100,000.00 in retail sales or 200 sales transactions in the previous or current calendar year.
Effective October 1, 2019
Maryland
Marketplace facilitators in Maryland must collect sales tax on behalf of third-party sellers, regardless of sales thresholds.
Note: A marketplace facilitator and seller may ask for a waiver of this requirement if:
- The marketplace seller is a publicly traded communications company;
- The marketplace facilitator and marketplace seller have an agreement that the seller will collect and remit applicable taxes; and
- The marketplace seller provides the facilitator with evidence that the seller is licensed to engage in the business of an out-of-state vendor in Maryland.
Effective October 1, 2019
Read Maryland’s official rules
Massachusetts
Massachusetts’ law states that if a remote marketplace facilitator makes more than $100,000 in sales in Massachusetts in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers.
Effective October 1, 2019
Read Massachusetts’ official rules
Michigan
Michigan’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Michigan in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers.
Effective January 1, 2020
Read Michigan’s official rules
Minnesota
Minnesota law requires “marketplace providers” to collect and remit sales tax on behalf of its third-party sellers once the platform has surpassed $100,000 in sales or over 200 sales transactions in any twelve-month period.
Effective October 1, 2018
Read Minnesota's official rules
Mississippi
In Mississippi, marketplaces that make more than $250,000 in sales in any consecutive twelve-month period are required to collect sales tax on behalf of third-party sellers.
Effective July 1, 2020
Read Mississippi’s official rules
Missouri
If a marketplace’s gross receipts from taxable sales exceed $100,000 in a calendar year, it must collect and remit sales tax on behalf of third-party sellers.
Effective January 1, 2023
Read Missouri’s official rules
Nebraska
Nebraska’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Nebraska in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers.
Effective April 1, 2019
Read Nebraska's official rules
Nevada
Nevada’s law states that if a remote marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Nevada in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers.
Note: The marketplace and the seller can make a written agreement to have the seller collect sales tax instead, if preferred.
Effective October 1, 2019
New Jersey
New Jersey’s law requires all marketplaces to collect and remit sales tax on sales facilitated through the marketplace, regardless of sales volume or number of transactions per year.
Effective November 1, 2018
Read New Jersey's official rules
New Mexico
In New Mexico, marketplace facilitators become responsible for collecting and remitting sales tax on behalf of third-party sellers once the platform passes $100,000 in New Mexico sales.
Effective July 1, 2019
Read New Mexico's official rules
New York
In New York, “marketplace providers” that sell over $500,000 over make over 100 sales transactions in the state of New York “in the previous four sales tax quarters” must handle sales tax on behalf of their third-party sellers.
Effective June 1, 2019
Read New York's official rules
North Carolina
North Carolina’s law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in North Carolina in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers. This includes all applicable city and county local option taxes.
Effective February 1, 2020
Read North Carolina’s official rules
North Dakota
North Dakota law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in North Dakota in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers. This includes all applicable city and county local option taxes.
Effective July 1, 2019
Read North Dakota's official rules
Ohio
Marketplace facilitators in Ohio are required to collect sales tax if they have already reached one or more of the nexus thresholds in the current calendar year or the prior calendar year.
Effective September 1, 2019
Oklahoma
In Oklahoma, marketplace facilitators are responsible for their sellers’ sales tax once the platform passes $100,000 in annual sales in the state.
Effective April 10, 2018
Read Oklahoma's official rules
Pennsylvania
In Pennsylvania, marketplace facilitators are responsible for their sellers’ sales tax once the platform passes $100,000 in annual sales in the state.
Effective July 1, 2019
Read Pennsylvania's official rules
Puerto Rico
Puerto Rico’s marketplace facilitator law states must collect sales tax on behalf of third-party sellers, once gross sales surpass a specific threshold.
Effective October 2020
Read Puerto Rico’s official rules
Rhode Island
Rhode Island law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Rhode Island in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
Read Rhode Island's official rules
South Carolina
In South Carolina, marketplace facilitators are responsible for their sellers’ sales tax once the platform passes $100,000 in annual sales in the state.
Effective April 26, 2019
Read South Carolina's official rules
South Dakota
South Dakota law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in South Dakota in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective March 1, 2019
Read South Dakota's official rules
Tennessee
In Tennessee, marketplace facilitators that gross more than $500,000 in the previous 12 months must handle sales tax on behalf of their third-party sellers.
Effective October 1, 2020
Read Tennessee’s official rules
Texas
In Texas, a marketplace facilitator is generally responsible for collecting, reporting, and paying the tax on retail sales made through their marketplace – regardless of sales thresholds.
Effective October 1, 2019
Utah
Utah law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Utah in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective October 1, 2019
Vermont
Vermont law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Vermont in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective June 7, 2019
Virginia
Virginia law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Virginia in the previous or current calendar year – then it is required to collect sales tax on behalf of its third-party sellers.
Effective July 1, 2019
Read Virginia's official rules
Washington, DC (District of Columbia)
In Washington DC, a marketplace facilitator is generally responsible for collecting, reporting, and paying the tax on retail sales made through their marketplace – regardless of sales thresholds.
Effective April 1, 2019
Washington
In Washington state, marketplace facilitators are required to register for sales tax if they have any sellers physically located in the state of Washington or once their gross sales there surpass $100,000.
Effective January 1, 2018. Amendments effective March 15, 2019.
Read Washington's official rules
West Virginia
West Virginia’s law requires all marketplaces to collect and remit sales tax on sales facilitated through the marketplace, regardless of sales volume or number of transactions per year.
Effective July 1, 2019
Read West Virginia's official rules
Wisconsin
Wisconsin’s law states that if a marketplace facilitator makes more than $100,000 in sales or at least 200 transactions in Wisconsin in the previous or current calendar year – across the platform – then it is required to collect sales tax on behalf of its third-party sellers.
Effective January 1, 2020
Read Wisconsin’s official rules
Wyoming
Wyoming’s law requires marketplaces to collect and remit sales tax on all Wisconsin sales facilitated through the marketplace.
Effective July 1, 2019
What Sellers Need to Know about Marketplace Facilitator Laws
It’s still very hard to tell how these new laws might affect you. From our research, we’ve put together a list of important points and practices, FYIs and suggestions, which will help your business through the confusion.
1. You might have the option to collect sales tax yourself
This is on a state-by-state basis. If a state provides this option, you’ll likely hear about it from the marketplace facilitator, who would offer you a chance to opt out and to manage taxes on the marketplace sales yourself. Whether you actually do want to opt out depends on whether you’re already registered for taxes in that state, the size and resources of your business to handle tax compliance, etc.
2. Maintain records of your sales in the state, no matter what
These transactions are still your business, and you should keep records of the tax information just in case. In fact, some states require facilitators to send you monthly reports, “access to information regarding gross sales made [in the state] on their behalf during the previous month.” Facilitators must send this report to you by the 15th of each month.
3. Make sure you have exemption certificates, where needed
Some states require you to retain an exemption certificate, administered by the state Department of Revenue and filled out by the marketplace. This is basically just an official document that confirms the marketplace facilitator is managing sales tax for you on their platform. As an example, here’s Arizona’s marketplace facilitator exemption certificate.
4. You may have to pay a fee to the marketplace for their tax management
This one is pretty self-explanatory! Stay aware of changes to service costs. You should be informed proactively via email or a pop-up notification when you log into the marketplace website.
5. Stay alert for news and instructions from the marketplaces where you sell
Marketplaces and other online sales platforms might instate new rules or settings for tax compliance, and you don’t want to be left out of the loop!
How to Comply with Marketplace Facilitator Tax Laws
In our experience working with online businesses, we’ve learned that a good chunk of sales tax compliance can still fall on your shoulders – even if you’re selling on marketplaces that charge and collect for you.
So, the trick is to make sure you’re complying with the marketplace facilitator tax laws as well as any sales tax rules that apply to remote businesses selling other places online, too. Here’s how you put all this information together to comply with marketplace facilitator tax laws as an online business.
- Understand the laws: The first step is to understand the sales tax laws in the jurisdictions where you operate. This includes understanding thresholds for economic nexus, tax rates, taxable items, exemptions, filing frequencies, and other relevant regulations. Keep in mind that tax laws can vary significantly by state and locality. We put together a guide to how US sales tax works that can help you understand!
- Register for sales tax wherever necessary: Once you understand your tax obligations, register for sales tax permits in the states where you meet the economic nexus thresholds. This typically involves registering with each state's department of revenue or equivalent tax authority. Some states may require you to register before making any sales, while others may allow you to register after you've reached the threshold. Check out our tax registration guides by state.
- Enable marketplace collection: In some cases, you might have to authorize the marketplace facilitator to handle sales tax on your behalf (even if the law requires them to do so!). Ensure that you’ve enabled this feature on the marketplaces where you sell your products. Only then will the marketplace calculate and collect the appropriate sales tax from customers during checkout.
- Monitor compliance as you go: Continuously monitor your sales to ensure that you remain compliant with the various state and local tax laws. Keep track of your sales volume in each jurisdiction to see whether you're about to exceed the economic nexus thresholds.
- File and remit taxes: Finally, file sales tax returns and remit the collected taxes to the appropriate states on time! Most states have specific filing frequencies (e.g., monthly, quarterly, annually), so make sure you're aware of the deadlines for each jurisdiction where you're registered. Many states also offer online portals for filing and remitting sales tax, which makes the process more streamlined for you.
You can also use a tool like Quaderno to help automate all facets of sales tax compliance that fall on your shoulders, outside of the marketplace facilitators’ responsibilities. Forget manual invoicing, monitoring your sales thresholds, and tracking different tax rules! Instead, save time and get peace of mind. Give us a try for free.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.
