Marketplace Facilitator Laws: What E-commerce Founders Must Do to Stay Compliant

Understanding Marketplace Facilitator Laws and Their Impact on US E-commerce

For US e-commerce founders, selling on a major platform like Amazon or Etsy can feel like a streamlined entry into the national market. The platform handles payments, logistics, and, most importantly, sales tax. This simplification, however, creates a dangerous blind spot. While Marketplace Facilitator Laws shifted a massive part of the sales tax burden onto the marketplaces themselves, they did not eliminate your compliance responsibilities. Understanding how do marketplace facilitator laws affect ecommerce sales tax is not just about what platforms handle; it is about managing the critical risks that remain on your plate. Failing to grasp this distinction can lead to significant penalties and messy cleanup projects during a future fundraise or acquisition.

The Foundational Shift in Online Marketplace Tax Rules

To understand today’s e-commerce tax landscape, we have to look back at a pivotal legal change. For decades, the standard was straightforward. The pre-2018 sales tax rules were primarily based on "physical presence" nexus. If your business had a physical location, like an office or warehouse, in a state, you were required to collect sales tax from customers in that state. For most online startups, this meant they only collected sales tax in their home state.

This long-standing framework was upended by a landmark Supreme Court ruling. The 2018 decision in South Dakota v. Wayfair allowed states to require sales tax collection based on a business's economic activity, a concept known as "economic nexus." (Citation: South Dakota v. Wayfair). This meant that even without a physical presence, selling a certain amount into a state could create a sales tax obligation. A common economic nexus threshold is "$100,000 in sales or 200 transactions" into a state over a 12-month period. Suddenly, remote seller tax laws meant thousands of online businesses potentially had nexus in dozens of states.

This ruling created an enormous compliance burden, particularly for small businesses. In response, states enacted a practical solution to ease the administrative strain. Marketplace Facilitator Laws (MFLs) shift the legal responsibility for collecting and remitting sales tax from the individual third-party seller to the marketplace facilitator, such as Amazon, Etsy, eBay, or Walmart. As a result, nearly every state with a sales tax has enacted these laws, making the marketplace the tax collector for sales occurring on its platform.

Part 1: What Marketplaces Now Handle (The 90% Solution)

For founders, MFLs represent a massive operational relief. For every transaction that occurs on a platform covered by these laws, the marketplace itself is legally responsible for the entire tax lifecycle. This includes calculating the correct sales tax rate, collecting the tax from the customer, and remitting the funds to the appropriate state and local tax authorities. This is the 90% solution that covers the most complex aspects of multi-state sales tax compliance for e-commerce sellers.

In your day-to-day finance operations, this means you do not need to track thousands of different tax jurisdictions or manage dozens of remittance forms for your marketplace sales. The funds deposited into your account from platforms like Amazon are net of sales tax, which the platform has already handled. This system provides immense leverage, allowing small teams to sell nationwide without needing a dedicated tax department. For a business that sells exclusively on a single marketplace, the platform’s handling of marketplace facilitator tax responsibilities covers the vast majority of its obligations.

Part 2: The Founder's Critical Role and How Marketplace Facilitator Laws Affect Ecommerce Sales Tax

The convenience of marketplace tax collection can mask underlying obligations that remain squarely with your business. The critical distinction to understand is that MFLs shift the duty to collect and remit tax for marketplace sales, but they do not erase your company's own sales tax nexus. If your business has nexus in a state, you still have responsibilities, which creates three common and significant pain points for founders.

Pain Point 1: Navigating State Registration and Filing Requirements

This is often the most confusing aspect of US state sales tax for online sales. If a marketplace is collecting and remitting all the tax, why would your business need to register for a sales tax permit? The answer lies in state oversight. States want visibility into the total economic activity within their borders, not just the portion reported by one facilitator. Your nexus is based on your total sales, creating an independent obligation.

In practice, many states still require a seller to register for a permit if they have economic nexus, regardless of whether a marketplace is handling the tax. In these states, you may be required to file a "zero return" even if the marketplace remits all tax on your behalf. A zero return is a tax filing that reports your total sales into the state but shows that zero tax is due from you directly, as it was handled by the marketplace. This filing confirms to the state that you are aware of your nexus and are in compliance. Requirements vary significantly; some states may not require a filing, while others strictly enforce it with penalties. Tracking these nuanced rules is a moving target.

Maintaining compliance requires staying current with each state's specific rules. Resources like the Sales Tax Institute or tax software providers like Avalara maintain comprehensive information on state-by-state registration and filing rules, which are essential for any e-commerce seller. (Citation: Sales Tax Institute or Avalara).

Pain Point 2: Reconciling Your Books with Marketplace Reports

The second pain point emerges in your accounting. Your approach to marketplace reports should be "Trust, but verify." While marketplaces provide detailed reports on sales and taxes remitted, these numbers must be correctly reflected in your company’s bookkeeping system, such as QuickBooks or Xero. The goal is not a painful, line-by-line audit but ensuring directional accuracy for your financial statements.

For most early-stage startups, the process is pragmatic. Your profit and loss statement needs to show accurate gross revenue, and your balance sheet should not reflect a sales tax liability that has already been paid on your behalf. A typical workflow involves downloading the gross sales report and the tax remittance report from the marketplace. In your accounting software, you would record the full gross revenue from sales. Then, you would make a corresponding entry to show the sales tax portion being cleared by the facilitator. This prevents a phantom liability from building up on your balance sheet, which is critical for accurate financial reporting to investors and for maintaining clean books for due diligence.

Pain Point 3: The Multi-Channel Nexus Trap

This is where compliance risk escalates dramatically. The most critical rule to remember is that economic nexus thresholds are based on a seller's total sales into a state across all channels combined. This includes sales from marketplaces, your direct-to-consumer (DTC) website, wholesale orders, and any other channels. A scenario we repeatedly see is founders undercounting their nexus footprint because they only look at sales from their DTC site, like Shopify.

This oversight can lead to significant uncollected tax liabilities. The practical consequence tends to be a sudden, expensive compliance problem discovered during the due diligence phase of a fundraise or acquisition. Let’s walk through a common example.

Consider an e-commerce brand based in Oregon (a state with no sales tax) that sells products nationwide. Their sales channels are Amazon and their own Shopify website. We'll look at their sales into Texas, which has a common economic nexus threshold of $100,000.

• Sales into Texas (trailing 12 months):
  • Amazon Sales: $90,000
  • Shopify Sales: $15,000
• Nexus Calculation:
  • The founder checks their Shopify dashboard and sees only $15,000 in Texas sales, believing they are safely under the threshold.
  • However, the state of Texas looks at the total economic activity. The correct calculation is $90,000 (from Amazon) + $15,000 (from Shopify), for a total of $105,000.
• Compliance Outcome:
  • The company has crossed the economic nexus threshold in Texas.
  • They are now required to register for a Texas sales tax permit.
  • For their Amazon sales, Amazon will continue its Amazon sales tax collection and remittance under MFLs.
  • However, for all future Shopify sales, the company itself is now responsible for collecting and remitting Texas sales tax. This means they must immediately configure their Shopify store to handle Texas sales tax calculations and filings.

This multi-channel complexity is the single biggest trap for growing e-commerce companies and a core reason why understanding remote seller tax laws is so important.

A Stage-Specific Action Plan for Sales Tax Compliance

Your approach to sales tax should evolve with your company’s growth. A bootstrapped startup has different needs than a Series B company scaling rapidly.

• Pre-Seed / Just Launched (Marketplace-Only): At this stage, your focus is on product-market fit, not complex tax systems. If you sell exclusively on platforms covered by MFLs, your compliance risk is minimal. Best practice is to start tracking your gross sales by state in a simple spreadsheet. This creates the data foundation you will need later without distracting you from core business building.
• Seed Stage (Multi-Channel, <$1M ARR): This is the danger zone. Once you add a DTC channel like Shopify, manual tracking becomes critical. You must aggregate sales data from all your channels to monitor your total sales into each state against their economic nexus thresholds. When you cross a threshold, you must register and begin collecting on your DTC channel. Tools like Shopify Tax can be configured for this, but the trigger is your own monitoring. Neglecting this step means you are accumulating tax debt.
• Series A/B (Scaling, >$1M ARR): At this point, manual tracking is no longer a viable or scalable solution. The risk of error and the cost of non-compliance are too high. Investing in sales tax automation software becomes a necessity. These tools integrate with your e-commerce platforms and accounting software to automate nexus tracking, calculation, and filing. It becomes a core piece of your finance tech stack, protecting the company from liabilities that could complicate future funding rounds or an acquisition.

Ultimately, Marketplace Facilitator Laws are a powerful tool that helps e-commerce companies scale. But they are not a complete compliance solution. Founders must stay aware of their own responsibilities, particularly around registration, reporting, and the complexities of multi-channel sales. See the Sales Tax hub for broader context on building a robust compliance function.

Frequently Asked Questions

Q: Do I need a sales tax permit in every state where a marketplace collects tax for me?
A: Not necessarily. You only need to register if your total sales into a state (across all channels) cross its economic nexus threshold. However, if you do have nexus, many states still require you to register and file "zero returns" even if the marketplace handles all tax remittance for that channel.

Q: What happens if I sell on a marketplace and my own Shopify store?
A: You must combine the sales from both channels to determine if you have economic nexus in a state. If your total sales cross the threshold, the marketplace will handle tax on its sales, but you become responsible for collecting and remitting sales tax on all sales through your Shopify store.

Q: Are Marketplace Facilitator Laws the same in every state?
A: No. While the core principle is the same, the specific rules, thresholds, and registration requirements vary by state. Some states may have different definitions of a "marketplace facilitator" or different rules for filing. It is essential to check the specific requirements for each state where you have nexus.

Q: How does Amazon FBA affect my sales tax obligations?
A: Using Fulfillment by Amazon (FBA) can create physical presence nexus in states where Amazon stores your inventory. This can trigger a sales tax registration and collection obligation independent of economic nexus thresholds. MFLs still require Amazon to handle tax on its sales, but this physical presence may create other compliance duties for you.