Marketplace Facilitator Sales Tax Rules for a Two-Sided Platform

Does a two-sided marketplace collect sales tax, or do the sellers?

In a state with a marketplace facilitator rule, the platform collects sales tax on the sellers' taxable sales once it fits that state's definition and either has a physical presence there or passes the state's registration threshold. Physical presence has no dollar threshold, so a state where the platform has an office, staff or stock applies from the first facilitated sale (New York; Florida; California counts inventory, a place of business or representatives). Where the platform does not fit, the sellers' own duties, if any, stay with them. This is state law, and states differ on three points that matter to a platform: whether it must collect the buyer's payment, whether services count, and when the duty starts. States call the platform a "marketplace facilitator" or a "marketplace provider"; this page says facilitator.

Customers do not collect sales tax. A buyer who is not charged tax on a taxable purchase may owe use tax, the buyer's own version of sales tax, directly (Pennsylvania).

What makes a case not simple:

• An investor or acquirer has asked whether the platform collects sales tax, or a diligence list asks for registrations and seller certifications.
• The platform takes or routes buyer payments, and buyers are in several states.
• It recently started taking payment, orders or stock handling, or opened an office or hired staff in a state: each can change the answer there.
• It sells services, not only goods.
• Its sellers and buyers are in states it has never checked.
• It also charges its own fees or sells its own subscriptions.
• A state's registration threshold may already be behind it.

Gather the money flow (who charges the buyer, who pays the seller, what the platform keeps), what is sold, buyer and seller states by month, the fee schedule and seller terms, and any registrations, certificates or seller notices already on file. Each state's test applies to these facts.

What makes a platform a marketplace facilitator?

A platform is a facilitator when a state's definition fits it. Most definitions share three parts: a contract with sellers, a marketplace the platform runs, and a role in the sale that goes beyond advertising. They split on the buyer's payment and on what is sold.

A platform can be a facilitator for some sales and an ordinary seller for others. Washington allows only one role per transaction (Washington); Texas says one business can be a marketplace provider, a marketplace seller and a remote seller at once (Texas FAQ). The table covers seven states. For any other, find the state revenue department's marketplace page and check four things: how it defines the platform, whether collecting or processing the buyer's payment is required, whether it reaches services, and how its threshold counts facilitated sales. The Streamlined Sales Tax Governing Board's chart links to many states' guidance; it is dated January 11, 2023, with later edits to some rows, so confirm on the state's page.

Does it matter that the platform handles the buyer's payment?

Yes in New York, Pennsylvania, Florida and Wisconsin, where collecting or processing the buyer's payment is part of the definition, and in Texas, which turns on processing sales or payments. No in California and Washington: a platform there can be a facilitator without processing payment if it does another listed activity, such as listing products or taking orders (California; Washington).

In New York, Florida, Pennsylvania, Wisconsin and Washington, passing payment to an outside processor does not take a platform out. New York counts a third party collecting under contract (New York). Florida, Pennsylvania and Wisconsin say "directly or indirectly" (Florida; Pennsylvania; Wisconsin). Washington's own example is a site that uses a third party to process payments and is still a facilitator.

Is a platform that only advertises, or only processes payments, a facilitator?

Usually not, but the line is narrow. A site that advertises sellers and sends buyers to the seller's own checkout is not a facilitator in California or Washington. In California the site becomes one for a sale once it also takes the order or processes the payment (Regulation 1684.5). Washington's example is a book site that sends buyers to the seller's site for a commission (Washington).

A business that only moves money is not necessarily running a marketplace. Florida excludes a person whose sole activity is processing payments between parties (Florida). California's regulation gives the example of a company that sells web hosting and payment processing to sellers who each run their own store: it operates no marketplace.

Some states carve out specific platform types. Florida excludes persons who solely provide travel agency services, and delivery network companies unless they are registered dealers that notify their local merchants they follow the marketplace provider rules; the 2021 TIP leaves out the notice condition, so follow the statute (Florida statute). California excludes delivery network companies (unless they elect in) and vehicle rental brokers (California). Washington excludes travel agency services and platforms for hotel or commercial lodging stays under 30 days, but not homes, apartments or cabins (Washington). If the platform handles travel, lodging, delivery or car rentals, read the state's text.

Does a peer-to-peer service marketplace have to collect sales tax on services?

It depends on the state's rule, and then on whether the state taxes the service. New York, California and Florida reach goods only. New York says its provider rule does not apply to services, hotel occupancy or restaurant meals, though separate rules may require a platform selling short-term rental occupancies to collect (New York). Washington, Pennsylvania and Wisconsin definitions include services. Texas's rule covers all sales through a marketplace and its FAQ covers tickets to amusement services, so a platform selling services Texas taxes should expect to collect there (Texas FAQ).

Even where a rule reaches services, the platform collects only on services the state taxes, and the state's own list of taxable services decides.

When does a platform have to register and collect, and does the seller's status matter?

A platform registers when it passes the state's threshold, and the threshold is measured on all sales through the platform, not on each seller. A platform of many small sellers can cross a threshold that no seller crosses. The seller's own status does not change this: New York applies the duty whether or not the seller must register (New York), and Wisconsin applies it even when the seller is a remote seller (no physical presence in Wisconsin) under the small seller exception (Wisconsin).

Physical presence is a separate trigger with no dollar line in all seven states (Texas words it as being engaged in business there). Washington also requires a facilitator to register if its sellers have physical presence in Washington, or if the facilitator is organized or commercially domiciled there (Washington).

Timing varies. New York tests both lines over the four sales tax quarters ending on the last day of February, May, August and November, so check after each quarter ends. For a business with no physical presence, the Tax Department says to file a certificate of registration within 30 days after the tests are met and start collecting 20 days after the registration deadline (Tax Department); the statute words that for vendors under section 1101(b)(8)(i)(E) (Tax Law 1134; Tax Law 1131). The Department's 2019 provider memorandum (guidance, not law) says an unregistered provider registers at least 20 days before beginning business in New York (TSB-M-19(2.1)S), so confirm which date applies before relying on the later one. Below either line, a platform with no physical presence is not a New York provider unless it elects to register (Tax Law 1101). For other states see every state's threshold.

What must a marketplace facilitator do?

A facilitator generally takes on the duties of an ordinary seller for the sales it facilitates, plus a duty to tell its sellers.

• Register with the state. New York requires a Certificate of Authority, its sales tax registration. In Texas, a provider that is a corporation, partnership or LLC must also file franchise tax reports if it has nexus there, and an out-of-state entity holding a Texas use tax permit is presumed to have it (Texas); see sales tax nexus vs income tax nexus.
• Collect state and local tax on each taxable facilitated sale delivered into the state. New York includes sellers located outside the state (New York).
• File returns and remit. New York gives a provider the obligations and rights of a vendor, and Texas requires it to collect, report and remit.
• Certify to sellers. New York requires Form ST-150, signed by an owner, partner or authorized person, within 90 days of the sales it facilitates, or a public agreement with sellers that says the platform is registered and will collect (ST-150). Texas requires a certification but no special form or wording; the terms of use can carry it (Texas FAQ). Florida lets the seller agreement carry it, and once the platform certifies, the seller may not collect the tax on those sales (Florida). Wisconsin requires a notice, in any form, that the platform collects and remits on all taxable Wisconsin sales (Wisconsin).
• Report to sellers. Washington requires a monthly report of each seller's Washington gross sales, due by the 15th of the following month (Washington).
• Keep records. New York requires records that identify the seller for each facilitated sale (New York). Texas requires records for at least four years (Texas). Washington and Wisconsin require the facilitator to keep the buyer's exemption documentation or certificate for each exempt sale (Washington; Wisconsin); see exemption certificates from customers.
• Collect fees that travel with a sale. California, Florida, Texas and Washington add fees or other taxes on certain items (California; Florida; Texas FAQ; Washington).

Relief is limited. New York, Wisconsin, Florida and Washington relieve a provider of liability to the extent an error came from the seller's incorrect or insufficient information (New York; Wisconsin; Florida; Washington). Florida also asks for a reasonable effort to get accurate information, and Washington gives it only to a facilitator that fully met the monthly seller report duty. New York, Florida and Washington deny relief between affiliated or related parties; New York's marketplace page sets its ownership test. California has its own relief rules (Revenue and Taxation Code sections 6046 and 6047) (California).

Two states let collection move to the seller. In Florida, a provider and a registered seller with more than $1 billion in annual US gross sales (related entities included) can agree by contract that the seller collects, if the seller notifies the department. In Wisconsin, the department can waive a provider's duty when it is satisfied the seller will reliably collect and remit; the application is Form S-102, which lists each seller and its permit number (Florida; Wisconsin).

If we are not a facilitator, do the sellers collect?

Each seller keeps whatever duty it has on sales the platform does not facilitate. That duty depends on the seller's own nexus and on whether the item is taxable in the state. Texas tells sellers to collect until a provider certifies that it will (Texas). Washington says a seller without documentation that the facilitator collects may be held liable for the uncollected tax (Washington). California treats the seller as the retailer for any sale a registered facilitator does not facilitate (California).

A certification tells sellers they need not collect (Texas; New York; Florida), so one given for a state where the platform does not collect can leave those sales uncollected. For the seller's own nexus questions, see where you have to collect sales tax.

How does a seller treat facilitated sales on its own return?

A registered seller usually still reports facilitated sales, but the method differs by state, which shapes what the platform's reports must show.

Sales through a platform still count toward the seller's own threshold in California, New York, Texas and Washington. Pennsylvania and Florida leave out sales a facilitator collects tax on (Pennsylvania; Florida).

Is the platform's own fee or commission taxable?

Sometimes. The fee can draw its own tax or be swept into the taxable sale, depending on the state and on what the fee buys. Washington subjects a facilitator's commission and fee income to business and occupation (B&O) tax under its Service and Other Activities classification when the facilitator has nexus there (Washington). Wisconsin says that on a taxable facilitated sale, the tax applies to the entire amount charged to the purchaser, including the platform's charge for facilitating the sale (Wisconsin).

A fee for software or tools sold to sellers follows the state's rules on software and services; see sales tax on SaaS and software. Tax the platform collects for a state is not the platform's revenue; see gross or net revenue for a marketplace and reconciling sales and payouts.

What will investors ask about marketplace sales tax, and what if we have not collected?

To answer an investor's question for a state where buyers are, the platform needs four facts:

1. Whether the platform fits the state's definition, given the role it plays and how payment flows.
2. The date it passed the state's registration threshold, counting facilitated sales.
3. Whether it is registered, collects, and has certified to sellers, with the terms or certificate on file.
4. Whether collected tax and the platform's own fees are kept apart in the books.

If the platform passed a threshold and did not register or collect, these states put the duty on facilitated sales on the platform, but sellers can be exposed too. Wisconsin says a provider can be audited and held liable for tax on facilitated sales unless it has a waiver or shows the error came from the seller's information (Wisconsin). New York ties a seller's relief to a good-faith certificate from the provider. Texas says both the provider and the seller are subject to audit (Texas FAQ).

People can be exposed as well. In New York, officers, directors and employees (and LLC managers) with a duty to act for the company in complying with the sales tax law, and any partner or LLC member, are persons required to collect and are personally liable for the tax (Tax Law 1131; Tax Law 1133; Publication 750). New York can assess within three years after the return is filed, or at any time if no return was filed (Tax Law 1147). In Washington, if a corporation or LLC with an unpaid tax warrant is dissolved, abandoned or insolvent, the department can pursue its responsible officers, managers, members and partners for the unpaid collected tax: a current or former chief executive or chief financial officer regardless of fault, for the period in the role, and others only for a willful failure to pay (RCW 82.32.145). Check the other states' rules.

How far back the exposure goes and how to come forward are separate questions. See catching up on uncollected sales tax and sales tax exposure found in due diligence.

Example

These examples are illustrative. Amounts are in US dollars.

Goods platform

Sellers list handmade goods and the platform takes the buyer's payment. In the four preceding sales tax quarters it delivered $700,000 of goods into New York in 400 orders, with no office or staff there. It is past both New York lines whether or not any single seller is; with an office or staff there it would have to register whatever its totals. It confirms its registration date: the Tax Department's guidance gives 30 days after the tests are met, while its provider memorandum says at least 20 days before beginning business. It collects on taxable goods from sellers inside and outside New York, and gives each seller Form ST-150 within 90 days of the sales it facilitates, or posts a public agreement with the required statement. Each registered seller reports those sales as nontaxable on its own return.

Services marketplace

A tutoring app lets parents book tutors. It charges the parent $60 a session, pays the tutor $50 and keeps $10. New York's provider rule covers goods only, so the app is not a facilitator for tutoring sessions there, and a registered tutor keeps any duty to collect on a taxable session. Washington, Pennsylvania and Wisconsin definitions mention services, and Texas's rule covers all sales through a marketplace, so the app checks each: does the state tax the session at all? If it does, the app collects there once it has a physical presence or passes the state's registration line, and in Wisconsin the tax applies to the whole $60 charged to the parent. If it does not, there is no tax to collect on the session. The $10 fee still needs its own check.

Referral site

A site lists sellers' products with a link that opens each seller's own checkout, and earns $5 for each sale it refers. It takes no orders and no payments. California treats a site that only advertises and refers buyers as not facilitating the sale, and Washington's book-site example fits too, so in those two states the platform is not the collector, and each seller's own duty, if it has one, is unchanged. Washington still taxes the site's $5 commissions under business and occupation tax once the site has nexus there. If the site later adds its own cart and takes payment, California treats it as facilitating those sales.

Different for you?

• An investor asked whether you collect sales tax, or your platform handles buyer payments in several states: the answer is state by state and turns on how money flows and what is sold. Whether you are a facilitator in each state, when registration started, and how collected tax and fees sit in the books are the points a review has to cover; see startup bookkeeping and tax services.
• You sell your own subscriptions or software as well: see sales tax on SaaS and software and merchant of record or filing yourself.
• You passed a state's threshold and did not collect: see catching up on uncollected sales tax; a diligence review will ask about it, so see startup bookkeeping and tax services.
• Diligence found a sales tax problem: see sales tax exposure found in due diligence.
• You are unsure whether sales tax collected counts as revenue, or payouts do not match: see gross or net revenue for a marketplace and reconciling sales and payouts.
• Your company or founders are outside the US: a state's thresholds count sales delivered or sourced into the state, so a platform based in Canada or elsewhere can still pass them. See foreign and Canadian sellers and US sales tax, and cross-border tax services for two countries together.
• You are a seller on someone else's marketplace: see where you have to collect sales tax.