Quick overview

Marketplace sellers face two related obligations: (1) state law may require sellers to collect and remit sales tax on taxable sales, and (2) many states now require marketplace facilitators (Amazon, eBay, Etsy, etc.) to collect and remit tax on behalf of sellers. These rules changed materially after the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., 2018, which allowed states to require tax collection based on economic presence rather than physical presence.

This article explains how to determine where you must register, what to collect, how to file, and practical steps to lower your compliance risk. It also links to tools and FinHelp resources for registration and automation.

Sources used: IRS (Sales and Use Tax) and state revenue departments. See the IRS overview: https://www.irs.gov/businesses/small-businesses-self-employed/sales-and-use-tax and the National Conference of State Legislatures summary of marketplace facilitator laws: https://www.ncsl.org/research/fiscal-policy/marketplace-facilitator-laws.aspx

Why this matters now

In my practice advising over 500 e-commerce clients, I’ve seen sellers face sudden multi-state exposure after storage or shipping changes, or when marketplace rules change. Noncompliance can lead to back taxes, interest, penalties, and marketplace account suspensions. Even if a marketplace collects tax for you, you still need correct product taxability coding and records to support exemptions or refunds.

Because state rules vary and change frequently, you should treat sales tax compliance as an ongoing operational task — not a one-time registration.

Step-by-step: Registration and reporting process

  1. Determine nexus (where you have a tax obligation)
  • Economic nexus: After Wayfair (2018), most states set economic thresholds that trigger an obligation when your in-state sales exceed a dollar amount, a number of transactions, or both. Many states use thresholds like $100,000 in sales or 200 transactions, but thresholds differ by state — check each state’s revenue site or summaries such as the NCSL and Tax Foundation for the current list.
  • Physical presence and storage: Having inventory in a state (including third-party logistics providers or fulfillment centers) creates nexus. Shipping goods using a marketplace’s fulfillment (FBA) often creates nexus where that inventory is stored.
  • Other nexus triggers: employees, independent reps, return locations, trade shows, or regular drop-shipping arrangements can create nexus.
  1. Confirm who collects the tax: you or the marketplace
  • Marketplace facilitator laws require many marketplaces to collect and remit sales tax on sales made through their platform. If the marketplace collects tax, the marketplace typically appears on the buyer’s tax receipt and remits tax to the state. However:
    • You remain responsible for ensuring product taxability is correct and for providing exemption/resale certificates when required.
    • Some states still hold sellers responsible for certain transactions (for example, direct sales outside of the marketplace). Always confirm the marketplace’s role and save their nexus/collection statements.
  • See a state-by-state summary here: https://www.ncsl.org/research/fiscal-policy/marketplace-facilitator-laws.aspx
  1. Register for a sales tax permit in each state where you have nexus
  • Use the state’s online revenue portal to apply for a seller’s permit/permit ID. Registration is usually required before you begin collecting tax in that state.
  • You will receive a permit number and information on filing frequency (monthly, quarterly, or annually).
  • FinHelp resource: For guidance on when and where to register, see our registration primer: Sales Tax Registration for Online Sellers: Where to Start (internal): https://finhelp.io/glossary/sales-tax-registration-for-online-sellers-where-to-start/
  1. Set up correct tax collection and classification
  • Determine which products are taxable in each state. States differ on groceries, clothing, digital goods, and services.
  • Apply correct tax rates and sourcing rules (origin vs. destination). Most states tax based on the destination address for goods shipped to consumers, but there are exceptions.
  • If a marketplace is collecting tax, verify that rates and product taxability are accurate in the platform’s product settings.
  1. Collect resale and exemption documentation
  • For resale sales or eligible exemptions, obtain and keep valid resale certificates or exemption certificates. Many states provide Form-specific templates; use the state’s guidance and keep digital copies with signature metadata where permitted.
  1. File returns and remit tax
  • File returns on the schedule the state assigns. Even if you remit $0 tax in a period, most states require a return or a ‘zero’ filing.
  • Reconcile marketplace reports against your account sales and remittances. Marketplaces often provide monthly seller reports detailing taxable sales and amounts collected.
  1. Maintain records and be audit-ready
  • Keep sales invoices, exemption certificates, marketplace reports, shipping records, and registration documents for at least the state’s statutory retention period (commonly 3–7 years).

Common pitfalls and how to avoid them

  • Assuming marketplaces handle everything: Marketplaces often collect tax, but sellers still need to manage product taxability, exemptions, and out-of-platform sales.
  • Missing inventory storage triggers: Third-party warehouses and fulfillment centers are a common surprise nexus trigger. Regularly review where inventory is held.
  • Poor recordkeeping: Weak or missing resale certificates and invoices are top audit vulnerabilities.
  • One-size-fits-all tax coding: Digital goods, bundled sales, and shipping charges can have unique treatments by state.

Penalties and enforcement

States can assess back taxes, interest, and penalties for late filing or nonpayment. Penalty structures vary by state, but common consequences include:

  • Assessed tax liability for the period of noncompliance
  • Interest from the due date
  • Penalties for late filing (often a percentage of tax due) and continued noncompliance

Timely voluntary disclosure agreements (VDAs) offered by some states can limit liability for prior periods if you proactively register and remit. Contact a qualified tax advisor before applying for a VDA to understand the tradeoffs.

Practical tools and strategies I recommend

  • Perform a nexus review at least annually and whenever you change fulfillment partners or expand into new states.
  • Use automation: Sales tax engines and accounting integrations can calculate rates, apply product taxability rules, and file returns. See FinHelp’s roundup of automation tools: Sales Tax Compliance Automation: Tools for Small E-commerce Businesses (internal): https://finhelp.io/glossary/sales-tax-compliance-automation-tools-for-small-e-commerce-businesses/
  • Build an internal checklist: registration status, permit numbers, filing schedule, resale certificate log, marketplace remittance reports, and audit file location. (FinHelp article: Building an Internal Control Checklist to Avoid Sales Tax Exposure)
  • Train staff: ensure customer service, listing managers, and warehouse partners know how tax rules affect refunds, exchanges, and inventory transfers.

Real-world example

One client sold handcrafted goods on two large marketplaces and used FBA-like warehousing in three states. After a nexus analysis and reviewing marketplace facilitator coverage, we:

  1. Registered in two states where the client’s inventory created nexus and where the marketplace did not collect tax for certain direct sales.
  2. Implemented a sales tax engine to ensure correct rates and product taxability.
  3. Collected resale certificates where the client sold to resellers.

The changes resolved open-state notices and avoided estimated penalties that would have exceeded $15,000 if left unaddressed.

Checklist: Immediate actions for marketplace sellers

  • Run a nexus and inventory location audit today.
  • Confirm which marketplaces collect tax and obtain their marketplace remittance statements.
  • Register in states where you meet nexus thresholds or have stored inventory.
  • Implement product-level taxability reviews and integrate an automated tax engine where appropriate.
  • Collect and centralize resale/exemption certificates.
  • Keep exports of monthly marketplace reports and reconcile them to your filed returns.

Frequently asked questions (short answers)

Q: If the marketplace collects tax, do I still need to register?
A: Often the marketplace collects and remits, but you should still confirm whether any direct sales, marketplace exceptions, or registration requirements apply. Some states still expect sellers to register even when the marketplace collects tax.

Q: How often do I file sales tax returns?
A: Filing frequency varies by state and is based on tax volume: monthly, quarterly, or annually. The state’s permit will note your filing frequency.

Q: Are shipping charges taxable?
A: It depends on the state and whether shipping is separately stated; states vary. Verify with the state’s department of revenue guidance.

Authoritative resources

Professional disclaimer

This article is educational and does not substitute for personalized tax or legal advice. State sales tax rules are fact-specific and change frequently. Consult a qualified tax professional or your state’s department of revenue for guidance tailored to your business.