Background and why this matters

After the Supreme Court decision in South Dakota v. Wayfair, Inc. (2018), states gained clearer authority to require remote sellers and marketplaces to collect sales tax (see the court opinion). Many states then enacted “marketplace facilitator” laws that place the duty to collect and remit sales tax on the marketplace when it facilitates the sale. That shift simplifies compliance for many individual sellers but changes reporting, pricing, and recordkeeping expectations for both sellers and platforms (Supreme Court, Wayfair; see also IRS guidance on state tax rules at IRS.gov).

How it works in practice

  • Marketplace facilitator law: A state law that identifies the platform (the facilitator) as responsible for collecting, reporting, and remitting sales tax on sales made through the platform.
  • Scope: Rules vary by state. Some laws apply to most tangible goods and many digital products; others carve out specific services or low-value transactions.
  • Outcome for sellers: When the marketplace collects sales tax, the seller normally does not need to collect tax on those marketplace sales—but the seller should still maintain records, register where required, and file any state returns for sales made off-platform.

Real-world examples

  • A craft seller on Etsy: Etsy may collect and remit sales tax for transactions shipped to states where Etsy is required to act as the facilitator. That relieves the seller from collecting tax on those sales, but the seller should keep detailed sales and fee records for bookkeeping and income reporting.
  • A merchant selling on their own website and on Amazon: Amazon might collect tax on marketplace sales, but the merchant remains responsible for collecting tax on sales made directly through their own site. Different rules apply to each channel.

Who is affected

  • Third-party sellers using online marketplaces where a state enforces facilitator rules.
  • Platforms identified in state statutes as marketplace facilitators (large platforms and, in some states, smaller marketplace operators).
  • Sellers with multistate sales: even if a marketplace collects tax in one state, sellers may still have registration or reporting duties in other states where they have nexus.

Key compliance steps (practical checklist)

  1. Inventory your sales channels: separate marketplace sales from direct sales in your accounting system.
  2. Check each state’s marketplace facilitator statute: determine whether the marketplace handles collection or the seller must.
  3. Register or maintain seller registrations where you have nexus for non-marketplace sales.
  4. Keep invoices and platform reports: platforms often provide monthly tax reports—save them for audits and tax filings.
  5. Use software: choose accounting and sales-tax engines that integrate with marketplaces to automate rate calculation and reporting.

Professional tips and strategies

  • Reconcile platform tax reports to your bank deposits and fee statements monthly to spot discrepancies early.
  • Track destination-based vs. origin-based taxing rules: some states tax based on the buyer’s location (destination), others on the seller’s location (origin). This affects which rate applies.
  • Separate pricing decisions from tax collection: when platforms collect tax, do not bake that tax into your list price; disclose tax separately to customers where required.
  • When selling across states, consult a tax professional to evaluate registration obligations and to build a multistate compliance plan. In my practice, regular reconciliation of platform tax remittances cut audit exposure for clients.

Common mistakes and misconceptions

  • Assuming every marketplace collects tax everywhere: marketplaces collect in many, but not all, jurisdictions. Sellers can be liable where the marketplace does not collect.
  • Overlooking recordkeeping: even when a marketplace collects tax, sellers must keep accurate records for income reporting, returns, and chargeback disputes.
  • Ignoring thresholds and nexus: marketplace facilitator laws do not eliminate other nexus triggers (e.g., inventory in a state, physical presence, or economic nexus thresholds for remote sales).

Frequently asked questions

Q: Do all marketplaces collect and remit sales tax?
A: No. Many major platforms do where state law requires them to, but collection varies by state and by platform. Always confirm with your marketplace’s tax policy and the state rules.

Q: If a marketplace collects sales tax, do I still need to register in that state?
A: Often you do not need to collect tax for marketplace-collected sales, but registration rules vary. Some states require sellers to register for other reasons (e.g., to claim exemptions or to report non-marketplace sales). Check state rules or consult a tax advisor.

Q: How does this interact with 1099-K reporting and other tax forms?
A: Marketplace sales reports and 1099-Ks are separate compliance pieces. Keep detailed records of gross sales, returns, marketplace fees, and tax collected so you can reconcile income reported to the IRS and to state tax authorities. See our guide: Year-Round Compliance Steps for Marketplace Sellers (1099-K Reporting).

Internal resources

Authoritative sources and further reading

  • U.S. Supreme Court, South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018): opinion establishing states’ authority to require out-of-state sellers to collect sales tax.
  • IRS — state and local tax resources: https://www.irs.gov
  • Consumer Financial Protection Bureau (CFPB) resources on online transactions: https://www.consumerfinance.gov

Professional disclaimer

This article is educational and not a substitute for personalized tax or legal advice. State tax laws differ and change; consult a qualified tax professional or your state tax agency for guidance tailored to your business circumstances.