Since 2019, the tax landscape for marketplace facilitators has been a different ballgame. By now, various states across the US have enacted marketplace facilitator laws that require companies to remit and collect sales tax on behalf of their sellers.
The Marketplace Facilitator Act requires any marketplace provider like Amazon, Walmart, Etsy, and eBay to gather and remit sales tax on behalf of the sellers within their online marketplace. That sounds like marketplace sellers are scoring, right?
Well, the definition and application of the Act differ from state to state. For most remote sellers, just stepping up to the plate usually isn’t a problem yet. But this blog is for you if you consistently hit home runs and light up your profits scoreboard in multiple states.
What are Marketplace Facilitator Laws?
Marketplace Facilitator (MF) Laws necessitate online marketplaces to manage the collection and remittance of sales tax on behalf of their sellers. These laws were enacted in response to the growth of online marketplaces like eBay and Amazon, which made it difficult for states to collect sales tax from sellers on these platforms.
The main reason for these laws is to simplify the sales tax collection process for state tax authorities. Instead of collecting sales tax from numerous individual sellers, the tax authorities can collect the tax from a single entity, the marketplace facilitator. This simplifies the process and increases the likelihood of tax compliance and the amount of tax revenue collected.
As mentioned, many states have implemented these new tax laws to streamline sales tax collection from online marketplaces:
Alabama – effective January 1, 2019
Arizona – effective October 1, 2019
Arkansas, effective July 1, 2019 (amendment pending)
California – effective October 1, 2019
Colorado – effective October 1, 2109
Connecticut – effective December 1, 2018
District of Columbia – effective April 1, 2019
Hawaii – effective January 1, 2020 (amendments pending)
Indiana – effective July 1, 2019
Iowa – effective January 1, 2019
Kentucky – effective July 1, 2019
Minnesota – effective October 1, 2018
Nebraska – effective April 1, 2019
New Jersey – effective November 1, 2018
New Mexico – effective July 1, 2019
New York – effective June 1, 2019
North Dakota – effective July 1, 2019
Oklahoma – effective April 10, 2018 (amendments pending)
Pennsylvania – July 1, 2019
Rhode Island – effective July 1, 2019
South Carolina – effective April 26, 2019
South Dakota – effective March 1, 2019
Texas – effective October 1, 2019
Utah – effective October 1, 2019
Vermont – effective June 7, 2019
Virginia – effective July 1, 2019
Washington – effective January 1, 2018 (amendments effective March 15, 2019)
West Virginia – effective July 1, 2019
Wyoming – effective July 1, 2019
How do Marketplace Facilitator Laws benefit online sellers?
Marketplace facilitator laws provide a significant advantage to sellers. They reduce the administrative burden associated with tax compliance, as marketplaces like Amazon and Target are responsible for remitting and collecting sales tax on behalf of the sellers.
These laws shift the obligation, relieving individual sellers from the burden of calculating and collecting sales tax. However, this is the US sales tax system we’re blogging about, and if you regularly visit our site, you’ll know nothing is ever straightforward, which brings us to nexus.
What marketplace sellers need to know about navigating the nexus curveball
Regarding your sales tax obligations as a marketplace seller, navigating the concept of nexus can be as challenging as determining how to handle sales tax on shipping.
If you’re just getting acquainted with nexus, you should know that the landscape has changed significantly with the rise of online marketplaces. It’s created a scenario where marketplace sellers may unintentionally violate their compliance obligations when filing a sales tax return.
We’ve put together a handy playbook if you’re looking for a deeper dive into nexus here.
Why is economic nexus a curveball for marketplace sellers?
The big misconception regarding marketplace rules is that sellers often mistakenly assume they bear no sales tax obligations from a sales tax perspective when they sell through the marketplace.
However, transactions conducted through the marketplace can impact their nexus obligations, as in most states, these transactions count for nexus threshold calculations. Additionally, these transactions should typically be reported as non-taxable since the marketplace is responsible for collection.
What is economic nexus?
Economic nexus, conversely, mandates that a business follows a state’s tax rules when it reaches a certain level of business activity, irrespective of its physical presence.
Currently, 46 states have adopted economic nexus laws. That affects you as a marketplace seller because if your sales exceed a certain threshold in a state (either in profits or sales), you have created a sales tax obligation, even without physical presence.
This threshold varies from state to state, so monitoring your sales volume in each jurisdiction is essential. If you have 30 minutes to spare, we’ll show you how to do that here.
Tips for Managing Sales Tax Obligations for Marketplace Sellers
1. Stay Informed
Sales tax in the United States is constantly evolving and as unpredictable as knowing who will win the World Series. Complyt keeps you updated on tax law and regulation changes, especially in states where you have nexus in just a few clicks.
2. Keep Detailed Records
Maintain thorough records of your sales transactions, including the amount of tax collected and remitted in each state.
3. Be aware of sales tax holidays
Many states have annual sales tax holidays, impacting your tax obligations. Marketplace sellers should be mindful of these holidays and adjust their sales tax revenue accordingly.
4. Monitor Nexus
Monitor your sales volume in each state to determine if you’ve triggered economic nexus. Yep, this is as complicated as it sounds, but it doesn’t have to be.
5. Automate Tax Compliance
Several software solutions can help marketplace sellers track their sales, register for sales tax, file sales tax returns, and gather and remit sales tax.
Complyt is an automated US sales tax platform that de-risks your exposure to tax obligations simply and reliably. With Complyt, you can calculate, file, and remit sales tax effortlessly with one compliance platform.
Plus, it integrates with any ERP, HR, and billing system instantly. Talk to sales if you’re hitting your profit targets out of the park, as you might have triggered economic nexus.
Do I need to collect sales tax on my marketplace transactions?
Whether you need to collect sales tax on your marketplace transactions depends on several factors, including the location of your business, the location of your customers, and the specific tax laws of the states where you’re doing business.
Given the complexity of sales tax laws and their potential to change, consulting with a tax professional or legal advisor is recommended to understand the specific tax obligations for your business in each state. Consider using tax compliance software like Complyt to help manage and automate your sales tax obligations.
What are my sales tax obligations when selling through a marketplace?
Your sales tax obligations when dealing through a marketplace, such as Amazon or eBay, can vary depending on several factors, including the specific laws and regulations of the state or jurisdiction in which you are conducting business.
How much can I sell on a marketplace without paying taxes?
It varies by state and changes frequently. In general, sellers must register, collect, and remit sales tax once they meet a set level of taxable sales or number of transactions within a state. The thresholds for economic nexus typically vary from state to state, but many have a threshold of 200 transactions or $100,000 in sales in the state annually.
What is Amazon marketplace facilitator tax?
It’s a tax that Amazon collects and remits on behalf of third-party sellers who sell products on the Amazon marketplace. As a marketplace facilitator, Amazon is responsible for calculating, collecting, remitting, and refunding state sales tax on sales sold by third-party sellers for transactions destined to states where Marketplace Facilitator and/or Marketplace use tax collection legislation is enacted.
What is Amazon sellers sales tax?
Amazon sellers’ sales tax applies to products sold by third-party sellers on Amazon. Amazon serves as a platform for merchants to offer their goods and services alongside those sold by Amazon. Furthermore, Amazon’s marketplace assists sellers in determining and collecting tax on their sales as per their provided instructions. Different sellers may have varying approaches to sales tax collection.
What is AWS marketplace tax?
It’s a tax collection and remittance service provided by Amazon Web Services (AWS) for sellers who sell their products on the AWS Marketplace. The service helps sellers comply with sales tax laws and regulations in the United States.
What is the Azure Marketplace Seller Guide?
It’s a resource that provides guidelines and requirements for listing new offers, services, and other IT solutions on the Azure Marketplace. The guide helps sellers understand the benefits of the Microsoft commercial marketplace and ensure that their solutions are targeted to the right audience.
Is Shopify a marketplace facilitator?
Shopify differs from Amazon or Etsy as it is not classified as a marketplace facilitator. As a result, Shopify is not legally mandated to gather and remit sales tax for its sellers, a requirement that many states impose on marketplace facilitators. On Shopify, sellers are responsible for adhering to local sales tax regulations and tax laws in each state where they establish nexus.