Quick overview
Marketplace facilitator rules make the online platform — not the individual third‑party seller — the primary party required to calculate, collect, and remit sales taxes on taxable transactions the platform facilitates. These laws were adopted widely after the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., which allowed states to require remote sellers and facilitators to collect sales tax even without a physical presence in the state (Wayfair, 2018).
This article explains how the rules work in practice, what sellers still need to do, common misconceptions, and practical steps you can take to stay compliant. Drawing on my 15+ years advising e‑commerce clients, I include examples and recordkeeping tips that reduce audit risk and administrative friction.
Sources cited in this article include state revenue departments, the Wayfair decision, and tax-policy analyses (see references). This is educational information and not tax advice; consult a tax professional for guidance tailored to your situation.
How marketplace facilitator rules work (step-by-step)
- Marketplace facilitator defined: A marketplace facilitator is the business that operates the electronic marketplace, matching buyers and sellers and often processing payments (examples: Amazon Marketplace, eBay, Etsy).
- Collection & remittance obligation: Under facilitator laws, the marketplace generally must calculate applicable sales tax at checkout, collect it from the buyer, and remit it to the appropriate state and local taxing authorities.
- Scope: These rules typically apply to tangible goods and many taxable services sold through a platform, but the exact scope depends on state law. States write their own definitions of taxable transactions and exemptions.
- Seller role: Sellers usually don’t need to collect sales tax on marketplace sales where the facilitator is collecting, but they may still have registration, reporting, or recordkeeping obligations in states where they meet nexus or sales thresholds.
In my practice I tell sellers: think of the marketplace as your primary tax-collection partner but not your sole compliance safeguard. You still need to know how the platform treats your listings, exemptions, and returns.
Why these rules exist (policy rationale)
The Wayfair decision removed the ‘‘physical presence’’ barrier to states’ authority to enforce sales tax collection. States then turned to marketplace facilitator laws because:
- Marketplaces centralize collection, making enforcement simpler for states.
- Centralized collection increases voluntary compliance and reduces uncollected tax on internet sales.
- For small sellers, facilitator collection reduces an administrative burden and lowers the risk of inadvertent noncompliance.
Public policy and practical benefits align: states collect revenue more reliably while many small sellers avoid the technical complexity of multi‑jurisdictional sales tax compliance.
What sellers still need to do
Even when a marketplace collects tax, sellers should not ignore sales tax compliance. Typical seller responsibilities include:
- Confirm how the marketplace handles tax on your sales. Review platform help pages and seller tax settings.
- Maintain accurate sales records. Keep invoices, order-level tax collected reports from the marketplace, and refund/return documentation for the statute of limitations in relevant states (commonly 3–6 years).
- Register for a sales tax permit where required. Some states require registration even if a marketplace facilitator collects and remits tax on your behalf. Registration rules vary by state.
- Provide valid exemption certificates when you make an exempt sale (e.g., resale certificates). Marketplaces often require sellers to upload exemption documentation to prevent tax being charged to exempt buyers.
- Reconcile marketplace reports with your books. Marketplaces provide monthly or quarterly reports; reconcile these to your own bookkeeping and bank deposits to confirm taxes were collected and remitted correctly.
From experience, the most common seller mistake is assuming ‘‘no tax responsibility’’ once the marketplace collects. That assumption can lead to missing registration requirements or failing to supply exemption certificates.
What marketplaces must do
Marketplace facilitators typically must:
- Register with state tax authorities in jurisdictions where they have nexus or as defined by state facilitator rules.
- Charge sales tax at the time of sale based on the buyer’s location and the product/service taxability rules.
- Remit collected taxes to each state and local jurisdiction and file required returns.
- Provide sellers and states with transaction-level records and reports as required by law.
Marketplaces that fail to comply can face liability, penalties, and interest. Sellers should preserve marketplace transaction documentation in case of later audits.
Common exceptions and nuance
- Exempt sales: Sales to exempt entities (e.g., certain nonprofits, resale transactions) often require a valid exemption certificate. Know how your marketplace handles certificate collection and acceptance.
- Marketplace thresholds and dates vary by state: States enacted facilitator laws at different times and with different triggers or thresholds. Check the specific state revenue department guidance for authoritative rules.
- Local taxes and special jurisdictions: Some local sales taxes or special districts may have unique rules that the marketplace must address; these vary widely.
Because state rules differ, always confirm requirements using the state Department of Revenue (DOR) or equivalent guidance for each state where you sell.
Practical compliance checklist for sellers (actionable steps)
- Log into your marketplace seller dashboard and download the tax reports for the last 3–5 years (or the period you need to support returns). Reconcile totals each month.
- Get copies of marketplace tax collection policies and keep screenshots of tax settings for your listings.
- Check whether your states of business require you to register for a sales tax permit even when the marketplace collects tax; register if required.
- If you sell into exempt markets, complete and submit exemption certificates according to the marketplace’s process.
- Work with your accountant to confirm whether marketplace-collected sales should be reported on your state returns or exempted as collected-by-facilitator transactions.
- Keep thorough records of refunds and returns; marketplaces often adjust tax on returns, and you’ll need evidence for state audits.
These steps greatly reduce the odds of surprises during a state audit. In my advisory work, clients who maintain the above records avoid most post‑sale compliance headaches.
Real‑world examples (illustrative)
- A craft seller on a major marketplace told me they no longer needed to collect tax on each order; the platform began collecting by destination. The seller still had to supply a resale certificate to the marketplace when selling to qualified resellers.
- A small electronics seller discovered they still had to register for a state permit because they met that state’s registration rule even though the marketplace remitted taxes on their sales. After registering, they kept better records and avoided a notification from the state.
These examples show how facilitation simplifies collection without entirely removing seller obligations.
Common misconceptions
- Misconception: ‘‘If the marketplace collects tax, I’m completely off the hook.’’ Reality: You likely have fewer collection duties, but you still have registration, reporting, and recordkeeping responsibilities in some states.
- Misconception: ‘‘All marketplaces collect tax the same way.’’ Reality: Each marketplace has different systems and policies; verify how your platform treats tax-exempt transactions and returns.
Frequently asked questions
- Do I need a sales tax permit if a marketplace collects tax on my sales? Often yes — some states expect sellers to register even if the marketplace collects tax. Check state DOR guidance.
- Who handles exempt sales? Exemption usually requires a certificate from the buyer; marketplaces may accept and store certificates on behalf of sellers, but sellers should verify that the certificate covers the transaction.
- Can a marketplace collect tax differently than my records show? Yes. Always reconcile marketplace reports to your own accounting records and resolve any differences quickly.
Where to get authoritative guidance
- Read the Wayfair decision (South Dakota v. Wayfair, 2018) for the legal foundation.
- Review your state’s Department of Revenue or Taxation official guidance on marketplace facilitators for specific filing rules and thresholds.
- Use nonprofit and policy summaries (e.g., Tax Foundation, state DOR guidance) for plain‑language explanations. For examples of detailed state guidance, consult the California Department of Tax and Fee Administration or the New York Department of Taxation and Finance (search for “marketplace facilitator” on each site).
For questions about how these rules apply to your business, talk to a CPA or state‑licensed tax professional.
Helpful internal resources
- Read our deep dive on nexus and online sales after Wayfair: Nexus and Sales Tax for Remote Sellers After Wayfair.
- New to online selling? Start with our primer: Sales Tax Basics for Online Sellers and Small Businesses.
Professional disclaimer
This article is educational and intended to help readers understand marketplace facilitator rules and practical compliance steps. It is not legal or tax advice for your specific situation. State sales and use tax laws change frequently — consult a qualified tax professional or your state revenue department for personalized guidance.
References and further reading
- South Dakota v. Wayfair, Inc., U.S. Supreme Court (2018).
- State Department of Revenue guidance (search your state DOR for “marketplace facilitator”).
- Tax Foundation and similar policy organizations for state-by-state summaries.
- FinHelp glossary entries linked above for related topics.
