The Truth About Amazon, Walmart, eBay, Etsy, and Other Big Marketplace Platforms
- Marketplace facilitator laws have shifted the tax collection responsibility from sellers to marketplace platforms.
- Despite marketplaces handling collection, sellers might still need to register and file returns depending on their business structure and where they sell.
- Many marketplaces handle sales tax differently from one another, with some offering more comprehensive coverage than others.
- Understanding your specific obligations beyond marketplace collection is essential to avoid penalties and remain compliant.
Sales Tax Obligations for Online Sellers
As a business, dealing with sales tax can be confusing. If you sell online through major marketplaces, you may wonder whether they handle all your sales tax obligations. Luckily, marketplace facilitator laws have shifted tax responsibility from sellers to large platforms – but they don’t eliminate all seller obligations!
Let’s dive into what a marketplace facilitator tax is, how marketplace facilitator sales taxes are handled, what the marketplace giants these laws apply to are doing for you, and, more importantly, what they might be leaving for you to handle!
“Marketplace Facilitators”
A “marketplace facilitator” is generally defined as a business that operates an electronic marketplace where third-party sellers can list products for sale and find customers. These platforms also usually process customer payments and transmit those payments to sellers on their platform.
The legal definition, and thus the scope of marketplace facilitator laws, gets more detailed and murkier when you look at individual state laws. Washington state, and many other states that have followed suit by mirroring Washington’s definition, define a facilitator as a business that connects buyers and sellers and performs other tasks like payment processing or fulfillment.
Suppose you sell products through Amazon, Walmart, eBay, or other ecommerce platforms. In that case, they almost certainly meet the criteria of being considered a “marketplace facilitator” according to such legal definitions. However, the rise of these laws and the resulting marketplace facilitator sales taxes are relatively recent phenomena!
Marketplace Facilitator Laws
These laws emerged in response to states struggling to collect sales taxes from the explosion of online sales. Before 2018, states couldn’t require remote sellers without physical presence to collect sales tax until the landmark South Dakota v. Wayfair Supreme Court decision changed everything. Following that ruling, states could require remote sellers to collect sales tax based on economic activity rather than physical presence.
States wasted no time in implementing what is now a “marketplace facilitator tax”—they quickly realized it would be much easier to require the handful of large marketplace platforms to collect taxes rather than chase thousands of individual sellers. Hence, there was a rise in marketplace facilitator laws.
Marketplace Facilitator Taxes
Despite the misleading name, it’s not a tax ON the facilitator or a new type of tax. A marketplace facilitator sales tax is simply a regular sales tax that the marketplace is now responsible for handling. The marketplace calculates the tax based on the buyer’s location, collects it during checkout, and then remits it directly to the state tax authorities.
This system creates a more streamlined process than collecting sales tax from each seller. The customer pays the correct tax, the state gets its tax revenue, and sellers don’t have to handle sales tax calculations—all thanks to marketplace facilitator laws.
Marketplace Facilitator Taxes in Practices: The Big Marketplaces
Now that we’ve covered what a marketplace facilitator tax is, it warrants going over some of the major marketplace platforms and how they handle sales tax:
Amazon
As the most enormous ecommerce behemoth, Amazon was one of the first platforms to implement comprehensive marketplace facilitator tax collection. Currently, Amazon collects and remits sales taxes for all third-party sellers in every state with marketplace facilitator taxes, which is now all states with sales taxes. They calculate, collect, remit, and even handle refunds of state sales taxes.
Walmart
Walmart has physical stores in every state, making all its online transactions subject to tax and marketplace facilitator laws. Their pricing algorithm calculates and collects marketplace facilitator sales tax based on customer and seller location, plus local and state laws. Some suppliers choose to incorporate taxes directly into their product pricing instead, but this approach requires managing one’s remittance to state authorities.
eBay
What is eBay’s marketplace facilitator tax policy? The platform automatically collects and remits sales tax in all states with a general sales tax to comply with marketplace facilitator regulations. eBay claims that once they collect tax in the required states, sellers on the platform have nothing further to worry about – and there are no charges or fees for eBay’s automatic tax calculation, collection, and remittance service. So, marketplace facilitator law compliance costs aren’t passed on to sellers. It is noteworthy that sellers cannot opt out of this service and that it’s completely automatic. However, eBay may not collect taxes in some home rule jurisdictions, potentially leaving gaps in coverage.
Etsy
Even as a relatively younger marketplace platform, Etsy has already implemented automatic sales tax collection for 45 states and Washington, D.C. The only states not currently covered are those without sales tax, such as Alaska, Delaware, Montana, New Hampshire, and Oregon. Similar to other marketplace platforms. Etsy determines tax requirements based on the customer’s shipping address and adds the appropriate amount during checkout.
The Shortcomings of Marketplace Facilitator Laws
Despite this automation, sellers aren’t entirely off the hook, even with larger ecommerce platforms. Here’s where things get a little more complicated. Even when ecommerce platforms handle marketplace facilitator sales tax for you, you might still need to register for sales tax permits in certain states. What is your marketplace facilitator tax liability that remains? It depends on several factors:
- Whether you have a physical presence in a state, such as physical inventory in an Amazon warehouse.
- If you sell through multiple channels beyond the major official marketplace facilitators that meet the legal definition of the term.
- State-specific sales tax registration requirements and regulations that aren’t covered by marketplace facilitator laws.
For instance, many states will require you to register and file returns if you’re an in-state multichannel seller with both a physical presence and sales through your website and multiple ecommerce marketplaces. And some states even require sales tax registration regardless of whether the market fully handles your tax collection.
Filing requirements can also vary dramatically. You might need to report marketplace sales on your returns even if you don’t remit tax for those sales.
Common Misconceptions
Some sellers mistakenly believe that marketplace facilitator laws automatically cover them. While these laws have simplified marketplace facilitator sales taxes enormously, they don’t always eliminate all seller responsibilities.
Another misconception is that laws governing marketplace facilitators are uniform across states. Legal definitions, thresholds, and requirements can vary significantly from state to state. What marketplace facilitator tax policy applies in California might not apply in New York or Texas.
The biggest misconception is that if you only sell through marketplaces, you never need to register for sales tax permits. In some cases, this might be true. Still, it depends on numerous factors, including your nexus status, business structure, specific states involved, and their potentially unique marketplace facilitator laws.
Where to Go From Here
Understanding your exact sales tax obligations as an online seller requires analyzing your specific business situation: where you have physical presence, which platforms you sell through, and your total sales volume in each state. While recent laws applying to marketplace facilitators have simplified collection, they haven’t eliminated the need for compliance knowledge.
At RJM Tax Exemption, we specialize exclusively in e-commerce business taxation. We stay current on marketplace tax laws so you don’t have to, and we’re here to help with personalized support.
Do you need to sort out your marketplace sales tax situation? Let’s talk. We’ll help you confidently navigate the maze of marketplace facilitator laws.
Contact us today for a free consultation and stop wondering if you’re covered!
