You sell products on Amazon, and sales tax gets collected automatically at checkout. You assume Amazon handles everything, so you stop filing returns in states where you previously remitted tax.
Six months later, a state auditor sends a notice demanding back taxes, penalties, and proof that the marketplace facilitator tax rules applied to your transactions.
You owe thousands because some of your sales did not qualify for facilitator collection.
Marketplace facilitator tax laws shifted collection responsibility to platforms like Amazon and Etsy, but exceptions exist that still require sellers to collect and remit tax independently.
In this guide, you will learn how facilitator tax works and when you remain responsible.
Marketplace facilitator tax shifts sales tax collection from individual sellers to platforms, but not always, and not everywhere. Understanding where and when it applies is the foundation for compliance.
A marketplace facilitator is a business or platform that contracts with third-party sellers to facilitate retail sales. This includes platforms like Amazon, eBay, Etsy, and Walmart Marketplace.
These platforms list products, process payments, and often handle fulfillment. Sellers are the businesses or individuals listing their products on these platforms.
States adopted marketplace facilitator laws to close tax loopholes and level the playing field between online marketplaces and traditional retailers.
Before these laws, sellers were responsible for calculating, collecting, and remitting sales tax in every state where they had nexus. This created significant complexity, especially for sellers using fulfillment centers or shipping nationwide.
Marketplace facilitator laws changed this dynamic. Now, platforms like Amazon and eBay collect and remit sales tax on behalf of their third-party sellers. The platform calculates tax based on the buyer’s location, collects it at checkout, and sends it to the appropriate state.
However, the rules are not universal. Not all platforms are marketplace facilitators (Shopify and WooCommerce are not). Facilitators only handle tax for sales made through their platform. Sellers may still need to file returns even when no tax is owed, and direct sales always remain the seller’s responsibility.
Even with these new rules, many sellers still make costly mistakes that lead to audits, penalties, and operational headaches.
Most sellers make preventable mistakes, like assuming the platform always handles tax or missing direct sales obligations, that lead to audits, penalties, or double-taxation.
Many sellers believe that selling on Amazon or eBay means the platform handles all tax obligations. This is incorrect. Marketplace facilitators collect and remit sales tax for sales on their platform, but sellers may still need to file returns or pay use tax on inventory stored in certain states.
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Example: A home goods seller generates $2 million annually on Amazon. Amazon collects and remits sales tax in all states. However, the seller maintains inventory in three states, creating a physical nexus. Those states require the seller to file returns, even if all sales are through Amazon. After skipping these filings for two years, the seller receives penalties for non-compliance. |
Multi-channel sellers often forget to track tax obligations for direct sales. If you sell on Amazon and your own Shopify store, Amazon collects tax for marketplace sales, but you are responsible for collecting and remitting tax on Shopify sales.
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Example: A seller has $80,000 in Amazon sales and $25,000 in direct website sales in Washington. Combined, they exceed the $100,000 threshold for economic nexus. If the seller does not collect tax on Shopify sales, they owe the uncollected tax personally. |
Each state sets its own economic nexus threshold and defines marketplace facilitator obligations differently. Some states require collection at any sales volume, while others set thresholds (often $100,000 or 200 transactions). Missing these details can lead to unexpected tax bills.
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Example: A seller crosses the $100,000 threshold in Texas but does not realize it. They fail to collect tax on direct sales and are held liable for back taxes and penalties. |
Without a centralized system, sellers risk paying tax twice on the same sale. This can happen if marketplace sales are reported on both marketplace and direct returns, or if reconciliation between payout reports and accounting records is incomplete.
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Example: A seller reports marketplace sales on a direct return and again in their accounting, resulting in duplicate tax payments and a time-consuming audit. |
Ecommerce sales tax filing deadlines and frequencies vary by state. Manual tracking across multiple states and platforms often leads to missed or late filings, triggering penalties, even if no tax is owed.
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Example: A seller misses quarterly filings in two states due to manual tracking. Each missed filing results in monthly penalties, compounding over time. |
Manual tracking of obligations across platforms often leads to missed filings or duplicate payments. To avoid these mistakes, you first need to know exactly what your obligations are. That starts with a decision framework.
A clear decision tree helps you pinpoint your exact tax responsibilities so you know what to track and report.
Here is an example. Jane sells handmade jewelry on Amazon and through her Shopify store. She is based in Ohio:
In Ohio (her home state), Jane must register and collect tax on all sales. Amazon collects tax on marketplace sales; Jane collects tax on Shopify sales.
In Washington, the threshold is $100,000. Jane’s combined sales exceed this, so she must register and collect tax on all sales in Washington. Amazon collects tax on marketplace sales; Jane must enable tax collection on Shopify for Washington buyers.
Summary of likely obligations:
Now that you know your likely obligations, you need to check the specific rules for each state where you do business.
Suggested read: Ask the Experts: Sales Tax Concerns for Small Online Sellers
Every state sets its own trigger and tracking them manually is complex, but essential for compliance. Below are key states with their economic nexus thresholds and marketplace facilitator law status:
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State |
Economic Nexus Threshold |
Marketplace Facilitator Law |
Notable Exceptions/Notes |
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California |
No minimum threshold |
Active |
All facilitators must collect |
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Texas |
$100,000 sales |
Active |
Includes remote sellers |
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New York |
$500,000 sales + 100 transactions |
Active |
Includes both sales and transaction count |
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Florida |
$100,000 sales |
Active |
Digital goods included |
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Washington |
$100,000 sales or 200 transactions |
Active |
Early adopter, includes services |
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Illinois |
$100,000 sales or 200 transactions |
Active |
Marketplace and direct sales combined |
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Pennsylvania |
$100,000 sales |
Active |
No transaction count threshold |
Table 1: State-by-state comparison
Tracking changing thresholds and rules manually across dozens of states quickly becomes overwhelming. For multi-state, multi-channel sellers, this complexity makes manual ecommerce sales tax compliance nearly impossible without a centralized system.
Once you know the rules, the real challenge is managing them across all your channels and platforms.
Suggested read: How to Simplify Ecommerce Bookkeeping
Centralized, automated data is the only way to stay compliant as you scale.
Each marketplace handles tax, payouts, and fees differently. For example, Amazon collects and remits sales tax on marketplace sales, but issues payout reports that do not always align with your accounting system.
Etsy may deduct fees before payout, while Shopify requires you to configure tax collection and does not remit on your behalf.
This fragmentation creates risks:
Webgility customers save up to 90% of time on reconciliation and month-end close. For example, Epic Mens saved over 80 hours a week by automating order and tax reconciliation across Shopify, Amazon, and QuickBooks.
A single source of truth for orders, fees, and taxes is essential. Webgility aggregates orders, fees, and tax data from all channels, updating your accounting and reporting in real time. This eliminates manual errors and ensures you never miss a filing threshold.
So, how do you build a compliance system that keeps you audit-ready and error-free?
Suggested read: eBay Accounting Guide: Simplify Taxes & Bookkeeping
The right system turns compliance from a burden into a routine process.
Connect all channels to a single dashboard. This ensures every order, fee, and tax is tracked in one place, reducing manual entry and errors.
Configure tax rules once and automate threshold monitoring. This allows you to spot when you cross state thresholds and ensures correct tax rates are applied to every sale.
Generate audit-ready reports and spot discrepancies quickly. Automated reconciliation highlights mismatches between marketplace payouts and accounting records, so you can resolve issues before they become problems.
Subscribe to updates, review with a CPA, and use tools that flag changes in state rules. Regular reviews keep your system aligned with evolving requirements.
Accounting automation tools like Webgility centralize data from Shopify, Amazon, eBay, and more, mapping sales, fees, and taxes to your accounting automatically. Real-time dashboards and reconciliation reports keep you audit-ready and error-free.
Complexity grows with scale and exemptions, but automation keeps even the most complicated setups compliant and efficient.
Sellers using multiple marketplaces and direct channels often receive fragmented payouts and inconsistent tax handling. Ecommerce automation platforms reconcile payouts, map tax obligations, and flag exceptions across all sales channels.
Some products are tax-exempt or partially exempt in certain states. Automated systems can apply the correct tax treatment based on product type and location, reducing manual research and errors.
States like Colorado and Pennsylvania have unique rules for delivery fees or digital goods. Automation tools update tax rules in real time, ensuring compliance as requirements change.
Channie, a multi-channel seller, saved over 60 hours per month and scaled order volume by 250% by automating tax and order management. Many sellers use accounting automation platforms like Webgility to reconcile payouts, map tax obligations, and flag exceptions across all sales channels.
Understanding your obligations and automating compliance is the path to stress-free growth. As your business scales, automation turns tax compliance into background work, freeing you to focus on what matters most.
With the right systems in place, you close your books three times faster and focus on growth, not busywork. Review your current systems and consider where automation could save time and reduce risk.
If you are ready to simplify compliance, explore how automation can help with Webgility. Schedule a demo today.
In most states, you must register for a sales tax permit if you have nexus, even if the marketplace collects and remits tax on your behalf. Some states require you to file zero returns.
The party that collected the original sales tax (marketplace or seller) is responsible for handling tax on returns or refunds. Check your platform’s policy and state rules.
Platforms like Webgility pull orders, payouts, and fees from all your channels automatically, align them with your tax rules, and prepare reconciliation reports, reducing manual work and minimizing errors.
You are responsible for collecting and remitting tax on direct sales and ensuring compliance for all channels once you cross the threshold.