Understanding Marketplace Facilitators and Taxes
What are “Marketplace Facilitators”?
More and more, the way in which we purchase goods and services has moved from physical brick-and-mortar shopping to a digital experience. At the heart of this e-commerce revolution is the “marketplace facilitator” – a company or platform that operates an online marketplace. Unlike traditional retailers, marketplace facilitators don’t necessarily own the inventory sold on their platform, but instead provide the infrastructure, marketing, payment processing, and logistics that connect sellers and buyers.
While you may not be familiar with the term “marketplace facilitator,” you’ll recognize the players – Amazon, eBay, Walmart Marketplace, Etsy, Airbnb . . . the list gets longer all the time.
What does this have to do with sales and use taxes?
Determining how much sales tax applies to a purchase depends on the location of that purchase and the applicable tax laws for that location. When you make a purchase in a brick-and-mortar location, the calculation of sales tax is easy to determine. But online sales easily move across state – and even country – lines, making the calculation of applicable sales tax less clear. That’s where marketplace facilitator laws come in. These laws shift the responsibility for collecting and remitting sales tax from the individual sellers to the marketplace facilitators themselves.
Responsibilities of marketplace facilitators
Marketplace facilitators are generally required to calculate, collect, and remit sales taxes on behalf of third-party sellers for transactions conducted on their platforms. Facilitators must maintain detailed records of transactions, along with the amount of taxes collected and remitted. If a facilitator fails to collect the proper tax, they can be held liable by tax authorities. These responsibilities can be daunting, as different jurisdictions have varying definitions of taxable goods, services, and exemptions.
Marketplace facilitators are also responsible for educating sellers about their obligations and the ways in which tax collection will affect their businesses.
And marketplace facilitators must maintain secure payment systems and customer data.
Not all online selling platforms are marketplace facilitators
Some platforms only provide tools and software for sellers to create their own online stores, but do not facilitate sales. While these platforms may provide tools to assist in calculating appropriate sales tax amounts, they don’t collect and remit sales tax on behalf of their sellers. This means that sellers who use non-marketplace facilitators are responsible for their own sales tax compliance.
If you sell products or services through a marketplace facilitator, know the policies of the platform and the requirements of the states in which you make sales. You may need to register with those states anywhere you have sales activities that create nexus. If you make sales outside of the marketplace facilitator’s platform (such as your own website or from a physical location), you’ll need to comply with the sales tax rules and obligations in the states in which you do business.
