Marketplaces such as Amazon, eBay, Uber, and Etsy are continuing to grow in popularity. In fact, according to a report from Digital Commerce 360, the top marketplaces globally sold roughly $3.22 trillion USD in goods in 2022, with most sales coming from third-party sellers.

In conjunction, certain governments have enacted legislation that requires marketplaces to collect and remit tax on behalf of their third-party sellers’ transactions. These laws benefit tax authorities because they can collect more tax from fewer entities, which simplifies compliance. Sellers benefit by having tax for certain transactions handled by the marketplace, but it’s not always a straightforward process.

If you operate an online marketplace or sell goods or services on an online marketplace, it’s important to understand your tax obligations and responsibilities to avoid penalties, be prepared in the event of a tax audit, and avoid back taxes if you aren’t in compliance.

This guide will help you as a seller understand marketplace tax laws in the US and EU and how to manage tax when a percentage (or all) of your sales take place on a marketplace. We’ll also share how Stripe can help you manage ongoing sales tax and VAT compliance.

It’s important to mention that we’ll cover certain tax obligations, but there might be other tax responsibilities marketplace sellers should consider, such as taxes on marketplace earnings. For more detail on how Stripe helps marketplaces with 1099 forms, read this page.

Finally, please bear in mind that the information provided in this guide does not constitute tax or legal advice. This guide has been prepared for informational purposes only and is not intended to provide, and should not be relied on, for tax or legal advice. You should consult your own tax, legal, and other advisors for advice specific to your situation.

Is my business a marketplace?

Marketplaces enable sales by listing the products, facilitating the payments (sometimes with the payment services powered by Stripe), sending transaction receipts, resolving disputes between buyers and sellers, and, in some cases, helping with shipment. While definitions vary, in general, a marketplace is a physical or electronic platform where marketplace sellers can sell their goods and services. Common examples of marketplaces are Amazon, Etsy, DoorDash, Alibaba, and Deliveroo.

Countries often use terms such as “platform operator,” “marketplace facilitator,” or “deemed seller” to describe marketplaces that are required to collect taxes on transactions they facilitate. These terms have specific legal meanings and might not directly translate to how Stripe (or the card networks) categorises those same businesses. Similarly, a marketplace operator that is required to collect tax (under applicable tax laws) might be different from the “merchant of record,” which is determined under card network rules.

The term “merchant of record” (MoR) refers to the entity that is legally authorised and responsible for selling the goods and services. The MoR is typically the party visible to the buyer as the seller of the goods or services, and is typically liable for all aspects of transactions, which includes product compliance, customer service or refunds, and dealing with regulatory or government bodies (e.g., consumer protection bureaus).
Additionally, the requirement for a marketplace operator to collect tax in one country or state does not necessarily apply in another. Check the tax regulations of each country or state you operate in to understand your specific obligations.

Terms and definitions

It’s important to understand the common terms associated with marketplaces and platforms in order for your business to manage tax compliance. We’ll outline and define these terms below.

Marketplace facilitator

In the US, marketplaces that are responsible for collecting tax on transactions that they facilitate are called “marketplace facilitators.” A marketplace facilitator is a business or organization that contracts with third parties (marketplace sellers) to sell goods and services on its platform and facilitate retail sales. As mentioned above, marketplace facilitators enable these sales by listing the products, taking the payments, collecting receipts, and in some cases, helping with shipment. As a marketplace facilitator, your compliance obligations – from registration requirements to reporting and filing – will be determined by the specific laws of each state.

Deemed seller

The EU uses the term “deemed sellers” to refer to marketplace operators that might have tax collection obligations on transactions that they facilitate. To qualify as a deemed seller, the business must set terms or conditions for the sale, process or enable customer payments, or handle ordering or delivery of the product. A business is not considered a deemed seller if it only processes payments, lists or advertises goods, or redirects customers to other websites or apps without further involvement in the sale. A deemed seller is treated as if it were buying the product from the business and selling it to the customer. This applies only for VAT purposes and does not change the commercial position where the title of the goods passes from the seller to the buyer.

Digital platform operator

Canada uses the term “digital platform operators” to refer to marketplace operators that might have tax collection obligations. A digital platform operator is someone who controls a transaction between a seller and a buyer (e.g., handling payments and passing them to the seller). However, this definition excludes businesses solely listing goods or processing payments.

Electronic distribution platform (EDP) operator

Australia uses the term “electronic distribution platform (EDP) operators” to refer to marketplace operators that might have tax collection obligations. To qualify as an EDP, a marketplace operator must set terms or conditions for the sale, process or enable customer payments, or handle ordering or delivery of the product. A business that only provides payment processing or maintains the technical infrastructure behind an online marketplace does not qualify as an EDP.

Marketplace laws in the US

In the US, marketplace facilitators are required to collect sales tax on behalf of third-party sellers when they reach economic nexus in the state. However, sellers are liable for tax if the marketplace facilitator does not collect it. This might occur if the marketplace was unable to remit the appropriate amount of tax due to incorrect information provided by the seller, or if the marketplace is not required to collect tax on behalf of the seller. Typically, a seller will receive written certification from the marketplace confirming that the marketplace is collecting sales tax on behalf of the seller.

Most states still require marketplace sellers to report how much sales tax was collected on their behalf by the marketplace facilitator and file sales tax returns, although it might be a zero return. States use sales tax returns as a way to check in on a business, and even though there is no sales tax to remit, a return is often required.

If a seller makes all their sales exclusively on the marketplace, certain states will allow them to cancel their registration to collect tax. Before cancelling a registration, sellers should ensure they can do so without penalty. In addition, sellers should consider if they intend to expand sales beyond the marketplace in the future, such as in a brick-and-mortar shop, tradeshow, or on their own online store. If so, they will need to register again with a state.

How to manage sales tax and marketplace sales for sellers

Two scenarios could arise when managing sales tax and marketplace sales for sellers:

• All of a seller’s sales are made on a marketplace.
  
• A percentage of sales are made on a marketplace.
  

We’ll walk through how to manage these different scenarios.

Marketplace-only sales

If a seller is only making sales on a marketplace and has confirmed the marketplace is collecting sales tax on its behalf, the seller does not have to calculate, collect, or remit the sales tax from its customers. However, the seller could still be required to prepare and file a tax return by the due date that reports how much tax was collected by the marketplace. In this scenario, the seller will likely not owe the state anything, but will fulfil its filing requirements.

Percentage of sales on a marketplace

Let’s say a seller makes 50% of its sales on a marketplace and 50% on its own website. For the marketplace sales, the seller would want to ensure that the marketplace is collecting and remitting tax on its behalf, and maintain records of how much tax is collected on the marketplace. For the 50% of the sales made on its website, the seller is required to collect and remit tax on those sales, assuming it has met economic nexus in the relevant state.

When it’s time to file, the seller can report both how much was collected and remitted by the marketplace, as well as how much the seller directly collected from customers on its website. The seller will only have to pay (remit) the sales tax it has collected, not what the marketplace collected. Most state tax websites in the US will break out marketplace sales from website sales in separate lines, so sellers can easily add in the correct amounts.

Marketplace laws in the EU

The EU has special rules for marketplaces that facilitate sales of certain goods and services. The following conditions define a marketplace as the facilitator of a sale:

• Setting the terms of the supply either directly or indirectly
  
• Being involved in authorising the payment
  
• Being involved in the delivery of the product
  

Meeting any of these three conditions would mean the marketplace becomes a deemed seller and is responsible for collecting VAT on certain sales that it facilitates. The tax collection obligation for marketplace operators usually applies to:

• Sales of digital services
  
• Sales of goods by non-EU sellers to EU individuals if the goods are located in the EU at the point of sale
  
• Sales of goods to EU individuals where the goods are imported into the EU in packages valued at 150 EUR or less
  

Marketplace operators facilitating other types of sales might be required to collect VAT on these sales based on other indicators and contractual arrangements.

The European Commission announced significant reforms to the EU VAT system in December 2022. The proposals on “VAT in the Digital Age” (ViDA) expand the scope of the deemed supplier rule to platforms in the short-term accommodation rental and passenger transport sectors. Platforms in these sectors will need to collect and remit VAT on transactions that they facilitate if the underlying seller is not required to collect tax. The deemed supplier rule will not apply to sales made by VAT-registered businesses that provide the platform operator with their VAT identification numbers.

The proposed rules on the platform economy will take effect in 2027 if unanimously approved by all EU member states.

Marketplace tax considerations

The choice to become a marketplace facilitator or deemed seller is an important business decision. It can have tax and legal implications and impact customer adoption. Many businesses decide to take on the tax requirements early on. Some could decide to become a marketplace facilitator down the road, but making that type of change can be challenging and disruptive for the third-party sellers.

While there is a lot to consider, becoming a marketplace facilitator from the beginning can offer several benefits:

• Reassurance in tax obligations: By adopting the responsibilities of a marketplace facilitator or deemed seller early on, businesses can create clear tax compliance processes and systems. This reassures the business and its users that tax obligations are being handled correctly and efficiently. Additionally, the business knows it’s meeting its legal tax requirements, and can reduce its risk of audit.
  
• Streamlined tax compliance: When businesses decide to become a marketplace facilitator or deemed seller from Day One, they are proactively managing their tax requirements, including collecting and remitting tax on behalf of themselves and the third-party sellers. This prevents the individual sellers from needing to manage their own.
  
• Improved customer experience: With the marketplace or platform managing the tax calculation and collection process, the overall checkout experience is improved. The purchasing experience is seamless and customers are not surprised by additional taxes that are added later in the checkout process.
  
• Competitive advantage: Third-party sellers don’t want to manage their tax obligations, and the idea that the marketplace or platform will be managing the tax requirement on their behalf can make your platform more attractive to them.
  

Each business is different, and the choice to become a marketplace facilitator or deemed seller has many implications. We recommend seeking advice from tax professionals to determine the best decision for your business.

Tax compliance resources

Understanding marketplace tax considerations is only one part of compliance. Here are a few resources to help guide you through the other aspects of compliance:

• Introduction to sales tax, VAT, and GST compliance
  
• Introduction to US sales tax and economic nexus
  
• Introduction to EU VAT and VAT OSS
  
• Navigating the sales tax registration process in the US
  
• Navigating the VAT registration process in Europe
  
• Navigating the GST registration process in Canada
  
• How to file sales tax returns in the US
  
• A guide to sales tax and VAT for marketplace sellers
  
• How to evaluate tax automation software
  
• Introduction to SaaS taxability in the US
  

Remember: ensuring your business stays tax compliant begins with understanding where you have tax obligations. Then, you need to register with the local tax authority, calculate and collect the right amount of tax, and finally, file and remit the tax collected.

How Stripe can help

Stripe helps marketplaces build and scale powerful global payments and financial services businesses with less overhead and more opportunities for growth. Stripe Tax reduces the complexity of global tax compliance so you can focus on growing your business. It automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services in all US states and in 40 countries. Stripe Tax is natively built into Stripe, so you can get started faster – no third-party integration or plug-ins are required.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you might need to collect taxes based on your Stripe transactions, and after you register, you can switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection to Stripe’s no-code products, such as Invoicing, with the click of a button.
  
• Register to pay tax: Stripe Tax provides links to the websites where you can register once you meet a state’s tax registration requirement.
  
• Automatically collect sales tax: Stripe Tax calculates and collects the amount of tax owed. It supports hundreds of products and services, and is up-to-date on tax rule and rate changes.
  
• Simplify filing and remittance: Stripe generates itemised reporting and tax summaries for each filing location, helping you easily file and remit taxes on your own, with your accountant or with a Stripe filing partner.
  

Learn more about Stripe Tax.