Navigating Sales Tax Compliance in eCommerce & Retail: Part 2

In Part 1 of this series, we explored the foundations of sales tax compliance in eCommerce and retail: nexus, taxability, and drop shipments. In this follow-up, we’ll dig into some of the more advanced and often overlooked areas of sales tax compliance, including home-rule jurisdictions, marketplace facilitators, tax automation, and the registration and filing process.

Home-Rule Jurisdictions

A home-rule jurisdiction is a local city or county that has authority, granted by the state, to establish its own sales tax rules.

For example, Colorado has more than 70 home-rule jurisdictions. While many follow state statutes, Colorado’s home-rule cities are unique: most tax downloadable software and SaaS, even though the State of Colorado does not.

Other notable states and cities with home-rule authority include:

• Alabama, Arkansas, Alaska (limited form), and Louisiana
• Chicago, Illinois, which applies its own home-rule rules to lease tax, amusement tax, and digital goods

Why this matters: If you’re selling into these jurisdictions, you can’t assume the state rules are the final word. Each city may have its own requirements, making compliance more complex.

Marketplace Facilitators

A marketplace facilitator is any business that enables third parties to sell products or services on their platform. Common examples include Amazon, eBay, and Etsy.

Most states require the facilitator, not the seller, to collect and remit sales tax. However, there’s a catch:

• Vendors must often include gross receipts from marketplace sales when calculating economic nexus thresholds.
• If you sell both through your own eCommerce site and a marketplace, failing to include this revenue could create hidden compliance risks.

Key takeaway: Don’t assume marketplace facilitators cover everything. You may still have filing obligations depending on state rules.

Tax Automation and Calculators

As your business scales, managing situs (tax location rules), product taxability, and constantly changing sales tax rates becomes overwhelming. That’s when tax automation software can help.

Questions to consider when choosing a tax engine:

• Does it integrate natively with your shopping cart or ERP?
• Does it support the product categories you sell?
• What level of customer support is provided if something goes wrong?

Pro tip: Don’t just compare features. Evaluate whether the software can handle multi-state compliance and jurisdiction-level reporting (critical in states like Colorado or Louisiana).

Registering: Not a One-and-Done Process

Registering for sales tax compliance isn’t just about filling out a form, it’s an ongoing process.

Considerations before and after registration:

• Retroactive liability: Did you have nexus before registering? If so, states may pursue back taxes.
• Responsible party laws: In some states, corporate officers or executives can be held personally liable for unpaid sales tax.
• Ongoing filing: You’ll need to manage:
  • Changing tax rates
  • Filing calendars and deadlines
  • Local jurisdiction contacts
  • Notices and correspondence from tax authorities

Compliance tip: Treat registration as the starting point, not the finish line.

Stay Ahead of Sales Tax Challenges

Sales tax compliance is one of the most complex, and fast-changing areas for eCommerce and retail businesses. Between home-rule cities like Denver or Chicago, evolving marketplace facilitator laws, and the need for tax automation, staying compliant requires both strategy and execution.

Want a deeper dive? Check out our on-demand webinar: “Navigating Sales Tax Compliance in eCommerce & Retail.”

Next step: If you’re unsure about your sales tax obligations, TaxConnex can help. Our experts provide end-to-end compliance support, ensuring you stay ahead of changing rules across all states and jurisdictions.

Get in touch with us today.