Marketplace facilitators, holiday sales and tricky nexus

Holiday shopping season offers probably the year’s best chance for your online business to score big, not only through sales on your own website but also through household-name marketplace facilitators like Amazon. Black Friday this year saw a record $10.8 billion in U.S. online sales up 10.2% over last year. Cyber Monday wasn’t far behind, as consumers looked to spend $13.2 billion, up more than 6% over 2023.

But the season also offers a big danger for your company to ignite economic nexus in various states and create sales tax obligations, with selling through the likes of Amazon being one of the most complicated ways to do so.

What’s a marketplace facilitator?

A marketplace facilitator is a platform where third-party sellers of any size and location can facilitate retail sales by listing their products. These days, marketplace facilitators process payments, collect receipts, sometimes assist in shipment and assume collecting and remitting sales tax. Amazon, eBay, Etsy and the like are major marketplace facilitators – and, as if any more proof was needed of their growing popularity, Amazon just posted a record late-November shopping season, with more than 60% of those sales coming from independent sellers.

In the months right after the Supreme Court’s 2018 Wayfair ruling, states began realizing they were missing a great deal of sales tax revenue by not mandating that marketplace facilitators adhere to their sales tax laws. If the facilitator meets the economic nexus threshold (which in many states are the same as for sellers who aren’t marketplace facilitators), the facilitator now has the responsibility to calculate and charge tax on those sales that it processes and facilitates. 

In states with these laws in place, then, you the online seller doesn’t have to worry about collecting tax for sales made through that facilitator.

All sales count toward nexus

Facilitators can complicate your sales tax obligations for two kinds of nexus: economic and, to a lesser extent, physical.

Economic nexus occurs when you reach a certain level of sales volume in a state where you have no physical presence. (We generally recommend that companies start paying attention to a state’s economic nexus laws when they hit $100,000 in that state annually.) Even though the marketplace you’re selling through collects and remits the sales tax on their platform, these sales need to be accounted for to determine whether you’ve reached economic nexus thresholds.

Your gross receipts of sales through a marketplace facilitator can be a significant portion of sales, especially if you also sell into a state or more-local tax jurisdiction via your own website or through other channels. Some states also rely on gross receipts of sales when calculating economic nexus even if some sales of are technically non-taxable items. Most states determine their threshold numbers by gross taxable sales.

(States with an economic nexus threshold that exclude gross sales from nexus have lately included Alabama, Arkansas, Colorado, Minnesota and Oklahoma.)

Facilitators also frequently warehouse sellers’ inventory in scattered sites nationwide (Amazon has hundreds such buildings, including its fulfillment centers). Inventory stored in a state has created debate over whether it constitutes physical nexus. Though Pennsylvania has ruled that such storage did not create physical presence nexus, states may not be finished trying to enforce this nexus rule.

Marketplace facilitators may boost your bottom line this holiday shopping season but remember watch out for the downside regarding your sales tax obligations. Monitor your sales via all methods and platforms.

(Learn more about marketplace facilitators on our recent “Hot Topic” webinar) 

If you sell through multiple channels, it’s important to understand how your sales tax obligation could grow. Talk to TaxConnex to see how our dedicated practitioners can manage the complexity so you don’t have to.