What Are Marketplace Facilitator Laws and How Do They Impact Sellers?

E-commerce has grown at an unprecedented rate over the past decade, and with that growth has come increasing scrutiny from tax authorities. One of the most significant regulatory changes in the industry is the introduction of marketplace facilitator laws, which shift the responsibility of sales tax collection from individual sellers to online marketplaces.

For many sellers, these laws simplify tax compliance—but they also raise new questions about tax obligations, nexus, and multi-channel selling. In this guide, we’ll break down marketplace facilitator laws, how they impact sellers, and what steps businesses should take to stay compliant.

Key takeaways:

• Marketplaces collect sales tax – Platforms like Amazon and eBay handle tax collection, but sellers still have compliance responsibilities.
  
  
• Tax nexus still applies – Sellers may need to register and file tax returns if they have economic or physical nexus in certain states.
  
  
• Multi-channel sales require tracking – Sellers must manage tax collection for sales made outside of marketplaces, such as through their own website.

What are marketplace facilitator laws?

Marketplace facilitator laws are state-imposed regulations that require online marketplaces—such as Amazon, eBay, Walmart, and Etsy—to collect and remit sales tax on behalf of third-party sellers. These laws ensure that state and local governments receive the appropriate sales tax from e-commerce transactions while reducing the burden on individual sellers.

Why were these laws introduced?

Historically, sales tax collection in the US was based on whether a seller had a physical presence in a state. This meant that small businesses selling online could often avoid collecting sales tax in states where they had no offices, warehouses, or employees. However, as e-commerce expanded, states lost significant tax revenue, prompting legislative changes.

A landmark moment came with the 2018 South Dakota v. Wayfair Supreme Court ruling, which allowed states to impose sales tax obligations based on economic nexus rather than just physical presence. This ruling led to a wave of new tax laws, including marketplace facilitator laws, to ensure compliance across online sales platforms.

How do marketplace facilitator laws work?

Under these laws, marketplaces are considered the “retailer” for tax purposes. This means that:

• The marketplace platform, not the seller, collects sales tax from customers at checkout.
• The marketplace remits the collected tax directly to the appropriate state tax authorities.
• The seller no longer needs to collect or remit sales tax for marketplace transactions in states with these laws.

As of today, most US states have implemented marketplace facilitator laws, and similar regulations exist in Canada, the EU, Australia, and elsewhere.

How do these laws impact online sellers?

While these laws relieve sellers of certain tax collection duties, they also introduce new compliance considerations. 

Sales tax collection is automated—but not for all sales

For transactions made through a marketplace, the platform takes care of sales tax collection. However, sellers who also sell through their own website, brick-and-mortar store, or other non-marketplace channels must still collect and remit sales tax where required.

Example: A business selling handmade jewelry operates on both Etsy and Shopify. Etsy collects and remits sales tax for marketplace orders, but the seller must manage tax compliance for Shopify sales independently.

Sellers must still monitor tax nexus

Even though marketplaces handle tax collection, sellers may still have economic or physical nexus in certain states. Factors that can establish nexus include:

• Storing inventory in warehouses (e.g., Amazon FBA fulfillment centers)
• Having employees, contractors, or offices in a state
• Reaching a certain revenue threshold from direct sales in a state

If a seller has nexus due to these factors, they may need to register and file sales tax returns even if their marketplace sales tax is already being handled.

Example: A seller using Amazon FBA has inventory stored in multiple states. Even though Amazon collects and remits sales tax, the seller might still be required to file tax returns in those states due to inventory storage creating nexus.

State-by-state variations in marketplace laws

Not all states have the same requirements under their marketplace facilitator laws. Some states have additional compliance rules, such as requiring sellers to report sales or include marketplace tax on their tax filings.

Example: In some states, sellers must still file a zero-dollar tax return if all sales tax was collected by a marketplace, while in others, no filing is necessary.

International sellers must pay attention

If you’re an international seller using US marketplaces, you might assume that marketplace facilitator laws mean you don’t need to worry about US sales tax. However, if you have economic nexus (due to sales volume) or physical presence (e.g., using Amazon fulfillment centers), you may still be required to register and file tax returns in certain states.

How to ensure compliance as an online seller

To avoid potential tax pitfalls, sellers should take proactive steps to ensure compliance with sales tax laws.

Understand your nexus obligations

Even with marketplace tax collection, sellers should determine if they have physical or economic nexus in any state where they operate. If they do, they may still need to register for sales tax permits and file tax returns.

Review marketplace tax reports

Marketplaces provide tax reports showing the sales tax collected and remitted on behalf of sellers. Sellers should regularly review these reports for accuracy and keep records for tax reporting and audit purposes.

Track multi-channel sales separately

If you sell on multiple platforms (e.g., Amazon, Shopify, and eBay), you must ensure you collect and remit tax correctly for non-marketplace transactions. Using tax automation software can help streamline compliance.

Consider sales tax automation solutions

Managing tax compliance manually can be time-consuming, especially for sellers operating across multiple states. Solutions like Taxually help automate sales tax calculations, reporting, and filing, ensuring that businesses remain compliant with evolving tax regulations.

Stay updated on changing tax laws

Tax laws are constantly evolving, and new regulations can impact online sellers. Keeping up with legislative changes at the state and federal levels is essential to avoid unexpected tax liabilities.

Conclusion

Marketplace facilitator laws have significantly changed how online sellers handle sales tax compliance, making it easier in some ways but more complex in others. While these laws relieve sellers of the burden of collecting tax on marketplace sales, sellers must still navigate multi-channel compliance, tax nexus, and state-specific variations.

By staying informed and leveraging automation tools, sellers can focus on growing their businesses without the headache of managing tax compliance manually.

Do you need help with your sales tax compliance? Book a free call with one of our sales tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers. 

Frequently Asked Questions

Do marketplace facilitator laws apply to all online marketplaces?

Most major marketplaces, like Amazon, eBay, Walmart, and Etsy, are covered, but requirements can vary by state.

Do I still need a sales tax permit if the marketplace collects tax for me?

If you sell only on marketplaces, you may not need a permit in certain states. However, if you also sell through your website or other channels, you may need to register and file tax returns.

How do I know if I have economic or physical nexus in a state?

You may have nexus if you exceed a state’s sales threshold, store inventory in fulfillment centers, or have employees or offices in that state.

What happens if I sell on multiple platforms?

Marketplaces collect and remit sales tax for their transactions, but you are responsible for collecting and remitting tax for direct sales through your own website or other non-marketplace channels.

Do international sellers need to worry about US sales tax?

Yes, if they meet economic nexus thresholds or store inventory in US fulfillment centers, they may need to register and file tax returns in certain states.