Selling on a marketplace like Amazon, Walmart, Etsy, or eBay can make getting your products in front of customers easier, but it comes with its own set of tax compliance challenges. The sales tax obligations for sellers on these platforms aren’t always as straightforward as they seem. While marketplaces generally handle the collection and remittance of sales tax on your behalf, there are still key responsibilities you need to be aware of to stay compliant.
How Sales Tax Works on Marketplaces
When selling on a marketplace, the platform is often considered the “marketplace facilitator.” This means that the marketplace collects and remits sales tax on behalf of sellers for transactions made through their platform. Sounds great, right? You don’t need to worry about charging sales tax yourself—at least not directly
The golden rule is this: in most states, it’s the marketplace’s problem, but…
In tax there is always a but! (That’s what makes it such a pain in the …) Whilst all 47 US states that have sales tax oblige website sellers to register and charge sales tax on their transactions, sales made via a marketplace are generally the marketplace’s problem. But be careful: although in most states Amazon, Walmart et al will be legally responsible for collecting the sales tax on your transactions, you may still have an obligation to register with the state.
It is irritating – even though the marketplace is accountable for reporting and paying the taxes – some states still oblige sellers to register with them so they can keep their eye on you. These simplified registrations may be a pain, but if you want to sell compliantly you will need to register (assuming you have created nexus in the state).
The other thing to consider is your calculation for economic nexus. Even if most of your sales are done on a marketplace, if you are “omni-channel” and also sell to the US from your own site, the obligations will still apply for those sales. Therefore, when evaluating economic nexus thresholds, the marketplace sales might be included in that calculation (it depends on the state).
Physical Nexus and Fulfillment by Amazon (FBA)
The final ‘but’ to consider is your fulfilment. As above, most sales tax obligations will arise because of economic nexus, but sellers are not off the hook when it comes to physical nexus. If you use a service like Amazon FBA (where your products are stored and fulfilled from their US-based warehouses), you will need to check if that creates physical nexus. If so, the marketplace seller will definitely be obligated to register in that state regardless of your sales activity – even though the marketplace will still be responsible for charging and reporting the tax.
If you sell exclusively in the online marketplace, you will certainly have reduced US sales tax obligations – but you are not completely exempt, unfortunately. If you are omnichannel, then you might not be responsible for the tax on the marketplace sales, but your registration and reporting obligations will be the same in most states because of your website sales.
It can be a minefield to navigate, so if you want to sell compliantly in the US, it’s crucial that you consult an expert (like us) to understand your legal obligations.
Navigating Marketplace Sales Tax – What You Need to Know
Selling on a marketplace certainly simplifies some aspects of tax compliance, but it doesn’t completely erase your responsibilities as a seller. Understanding your sales tax obligations—whether it’s economic nexus, physical nexus, or state registration—is crucial to staying compliant. While the marketplace handles tax collection for you, being informed and prepared can help you avoid surprises and penalties.
By knowing where you need to register, monitoring your nexus thresholds, and keeping track of your physical presence, you can sell confidently, knowing that your tax obligations are being met. For added peace of mind, it’s always a good idea to consult with sales tax experts or use sales tax compliance software to ensure you’re meeting all your legal requirements.
The information in this article is true to the best of our knowledge at the time of writing, but sales tax regulations can change very quickly. You should always consult a tax professional for legal advice.