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A Sales Tax Reporting Guide for Marketplace Sellers on Amazon

Mini orange shopping basket on a smart device and a laptop with boxes for an online marketplace concept.

As more states have adopted economic nexus laws, they are also stepping up in passing marketplace sellers or facilitators laws to collect sales tax. So far, over 30 states have enacted the facilitator laws when it became known that a substantial amount of transactions made over marketplace platforms such as Amazon, Etsy, and eBay were going untaxed.

While the laws have differing definitions per state, generally, marketplace facilitators are required to collect and remit sales tax on retail sales made through their platforms. In this case, Amazon takes the role of a facilitator that facilitates sales for third-party sellers through its global marketplaces. It's also similarly responsible for calculating, collecting, and paying state sales taxes. However, this doesn't mean that marketplace sellers are in the clear in administering their sales and use tax obligations. Read on.

Does a Marketplace Seller Need to Register for Amazon Sales?

Essentially, marketplace sellers do business in states that typically obligate an individual to first obtain a sales tax permit before collecting and remitting tax to the tax department. Marketplace sellers can either sell via a physical or online platform provided by the facilitator, such as Amazon, or directly to their customers in the state.

As a result, marketplace sellers should always keep the following considerations in mind:

1. Retail Sales Through Another Marketplace

If a marketplace seller makes retail sales through other mediums or other platforms, other than the facilitator's platform, such as their website, they should still expect to collect and remit sales tax.

2. Marketplace Facilitator Could Not Remit the Correct Sales Tax

The seller is also responsible if the marketplace facilitator could not remit the correct sales tax due to incorrect and incomplete information from a seller who is an unrelated party or if the facilitator made a reasonable effort to obtain accurate and complete information from an unrelated seller.

3. Sales Tax Returns in a Particular State

Depending on the state, the seller may be required to register, collect, and file sales tax returns. Often times, the facilitator collects tax on behalf of the seller. However, if the seller has sales on its own site directly or the facilitator is not collecting in a particular state, the seller can be on the hook for large amounts of sales tax.

4. Remote Seller’s Threshold

A remote seller who generally uses the online platform is also required to register and file tax returns provided they reach what is known as the remote seller's threshold. The remote seller's threshold is the transaction limit set by a state based on which they impose sales and use tax. Many states such as Arkansas and Florida both have the same remote seller's threshold of $100,000 or 200 transactions for the current or previous calendar year.

5. Some States Require Sellers to Register for Sales and Use Tax

There are states which still require sellers to register for sales and use tax purposes even if the facilitator is collecting and remitting on their behalf:

  • Minnesota, if the seller has a physical presence in the state
  • Washington, if the seller requires registering and filing for business and occupation tax due to having nexus
  • North Dakota, if the seller has a physical presence
  • Nebraska, if the seller exceeds the economic threshold
  • South Dakota
  • Utah, if the seller only sells through the facilitator platform and has a physical presence

6. States That Don’t Require Registration for Sellers

States that don't require registration for sellers where the facilitator is collecting sales tax include:

  • Vermont
  • Tennessee provided the seller has no physical presence
  • North Carolina
  • Wisconsin
  • Nevada
  • Wyoming
  • Michigan
  • Kansas

If the Seller Makes Sales on Other Platforms

As highlighted above, the seller is not free from their sales and use tax obligations if they sell through another platform other than Amazon. In addition, if they cross the economic threshold, they should be collecting and remitting sales tax. For example, in a state such as New Jersey, registration is compulsory if the remote seller is over the economic threshold and also sells on one or more platforms.

Further, even if the seller just makes sales through the facilitator platform, provided they have a physical presence in New Jersey, they must still register. Other states with a similar rule include North Dakota, West Virginia, Utah, and Rhode Island. Physical presence may be established with sellers having their shipment or inventory held within a state. As a whole, states have their own specific rules for registration and filing sales tax returns.

Finally, as explained above, selling on a facilitator’s site may put you close to or over states’ economic nexus thresholds, and minimal sales from your site or store directly may trigger nexus and the collection of state sales tax.

Final Thoughts

If you're a remote seller, it's important to keep up with any updates or changes in marketplace facilitator laws. In addition, you need a sales tax expert close by to ensure your business doesn't violate any rules. Otherwise, this could lead to penalties or audits.

If you need assistance staying compliant as a marketplace seller, please contact us today.

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