Is Shopify a marketplace facilitator?

In just 20 years since its founding, Shopify, the $7 billion platform that can be used to build online stores (some 2 million so far) to sell products on websites or via social media, has become a household name in eCommerce.

Such a goliath keep an eye on constant development, of course, and Shopify just took a big step regarding sales tax for its vendors. Effective last Jan. 1, Shopify’s Shop channel automatically collects, remits and files taxes for all orders shipping to or within the U.S., collecting taxes on orders in all states (plus the District of Columbia) that have a statewide sales tax, plus Alaska’s local sales tax.

Does Shopify join the ranks of other well-known marketplace facilitators like Amazon?

What’s a ‘facilitator’?

Selling online once meant little more than setting up a website and sending both marketing efforts and sales direct to customers. Now, online selling often involves relying on Amazon, Etsy, eBay and the like.

States, realizing that these marketplace facilitators could be an overlooked source of revenue, have created laws that shift the sales tax collection and remittance obligations from a third-party seller to the marketplace facilitator when applicable.

Generally, a marketplace facilitator is a business or organization that contracts with third parties to sell goods and services on its platform and facilitates retail sales. Marketplace facilitators enable these sales by listing the products, taking the payments, collecting receipts and sometimes assisting in shipment.

Does Shopify qualify?

Practically speaking, Shopify has become a facilitator in that it fulfills many of the functions of one.

Shopify has different themes that can be used to design a store, which comes with many built-in features; additional features, though, require Shopify’s apps and extensions. One of these, the Shop channel app, collects sales taxes, with tax calculations free to vendors.

Vendors begin the calculation by assigning their products to categories (Shopify can also do the assigning). The category determines the taxability of the product in the state where the vendor has nexus. When a vendor makes a sale through the Shop sales channel domestically, what the platform specifically calls “marketplace sales tax” is deducted from the vendor’s  Shopify Payments payouts. Payouts associated with these orders are marked as marketplace sales tax in the “type” column in a Shopify vendor’s payout details.

For orders placed directly through a vendor’s Shopify website, the vendor remains responsible for collecting and remitting the sales tax.

Questions remain

Prior to this development, Canada-based Shopify was not a marketplace facilitator and was not required to collect and remit sales tax for sellers. Perhaps stemming from that, some small vendors in the platform’s chat board are expressing confusion over the new procedure.

“I’d like clarification on what happens when an order is placed through the Shop app from a state that I do charge sales tax for already and remit on my own to my state,” wrote one user.

Said another, “As a facilitator, this app is considered the ‘seller’ and therefor reaches nexus quickly, where you and I may not sell that many or that much online in one state.”

“Every time an order is made using the app, it will be taxed as a facilitator?” wrote a third. “Until I understand this better, I am disabling the app on our site.”

Clearly, any big change regarding sales tax benefits from education and outreach.

Everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. Contact TaxConnex to learn what it means when sales tax is all on us.