Marketplace Facilitator Laws: Selling on Etsy, Amazon, and eBay

The good news first: if you sell through Etsy, Amazon, eBay, or a similar platform, the platform itself is generally required to calculate, collect, and remit sales tax on those sales for you. These are called "marketplace facilitator laws," and they exist because states realized it was far more efficient to make one large platform handle sales tax collection than to chase down thousands of individual small sellers. Because of these laws, many sellers who sell only through marketplaces don't need to register for a sales tax permit in every state their buyers live in - at least not for those marketplace sales.

But "the marketplace handles it" only covers part of your tax picture. It does not cover sales through your own website, it has nothing to do with the income tax you owe on your profit, and it doesn't relieve you of every state registration duty. Here's how to think about each piece.

What marketplace facilitator laws actually do

A "marketplace facilitator" is a company - Etsy, Amazon, eBay, Walmart Marketplace, and others - that lists products, processes payment, and facilitates the sale between a buyer and a third-party seller. States with a sales tax have passed laws requiring these facilitators, rather than each individual seller, to collect and remit the sales tax due on transactions that happen through their platform.

In practice, this means:

• When someone buys your handmade item on Etsy, Etsy calculates the sales tax owed based on the buyer's location, collects it at checkout, and sends it to the appropriate state - not you.
• The same generally happens on Amazon and eBay for sales made through those platforms.
• You typically don't need to separately track or remit sales tax on those specific transactions, because the platform already did it.

Not every state imposes a general sales tax in the first place - a handful of states (Alaska, Delaware, Montana, New Hampshire, and Oregon are commonly cited as not having a statewide sales tax) work differently, and Alaska in particular has local jurisdictions that can still impose their own sales tax and marketplace obligations. So this isn't a uniform, one-size-fits-all system - it varies by state, and the details (thresholds, exact registration rules, whether local jurisdictions are included) change over time. Always confirm the current rule with the tax agency in any state where you have significant sales.

The gaps marketplace facilitator laws don't cover

1. Sales through your own website

If you also sell through your own online store - a Shopify site, a WooCommerce site, or direct invoicing - marketplace facilitator laws don't apply to those sales at all. Sales tax on your own-site sales is your responsibility. Whether you owe it, and to which states, generally depends on whether you have "nexus" (a taxable connection) with a given state - which can be based on where your business is located, or on how much you sell to buyers in that state (economic nexus). Nexus thresholds and rules vary by state and change periodically, so check with each state's department of revenue or taxation before assuming you're covered - or exempt.

2. Income tax on your profit

This is the gap that surprises the most sellers: marketplace facilitator laws are entirely about sales tax - a tax the buyer pays that the platform passes through to the state. They have nothing to do with income tax on the money you actually earn. Every dollar of profit from your selling business - after subtracting your legitimate business expenses, cost of goods, shipping, and fees - is income you must report and pay federal income tax on, and self-employment tax as well if you're operating as a sole proprietor or through a single-member LLC. The self-employment tax rate is 15.3%, covering Social Security at 12.4% (up to the annually-adjusting wage base) and Medicare at 2.9%. You may also owe state income tax depending on where you live. None of this is handled by Etsy, Amazon, or eBay - the platform collecting sales tax at checkout tells you nothing about what you'll owe the IRS on your net earnings.

3. Form 1099-K reporting

Once your sales through a marketplace or payment platform cross a certain dollar amount and number of transactions in a year, the platform is required to send you - and the IRS - a Form 1099-K reporting your gross payment volume. That reporting threshold has changed more than once in recent years due to federal legislation, so don't rely on a number you saw a year or two ago; confirm the current threshold at irs.gov. Two important points regardless of the threshold:

• The 1099-K reports gross sales, not profit. It doesn't subtract your cost of materials, platform fees, shipping, or refunds. You still calculate your actual taxable income separately using your own records.
• You owe tax on your income whether or not you receive a 1099-K. Falling under the reporting threshold doesn't mean the income is tax-free - it only means the platform isn't required to send a form. Keep your own sales and expense records regardless.

4. State registration duties that can still apply to you

Even where a marketplace collects sales tax on your behalf, some states still expect sellers to register, obtain a seller's permit, or file a return (sometimes a simplified one, sometimes noting the sales as "marketplace-facilitated" so you're not double-taxed). Whether that applies to you can depend on your total sales volume in a state, whether you also sell outside the marketplace, and that state's specific rules - which vary and change. Don't assume you have zero registration duties just because the tax itself got collected; check directly with each state where you have significant sales.

What to do

1. Keep your own complete sales and expense records for every platform and your own website, regardless of what any 1099-K shows. This is the foundation for your income tax return.
2. Check whether you have sales tax duties beyond the marketplace - particularly for your own-website sales - by reviewing the tax agency guidance in the states where you have significant sales or a business presence.
3. Set aside money for income tax and self-employment tax as you earn, since no one is withholding it for you. Many self-employed sellers need to pay quarterly estimated taxes; the IRS explains the deadlines and worksheets at irs.gov.
4. Confirm current registration rules directly with each state's tax agency before assuming marketplace collection means you have no further duties there.
5. Talk to a CPA or tax professional once your selling becomes a real, ongoing income source - especially if you sell across multiple platforms, your own site, and multiple states. A qualified preparer can catch registration duties and deductions a general guide like this one can't.

Free resources worth using as you sort this out: the IRS's small business and self-employed section at irs.gov, the Small Business Administration (sba.gov), and your local Small Business Development Center, which offers free one-on-one counseling.

Frequently asked questions

Do I need a sales tax permit if I only sell on Etsy?

Possibly not, in states that treat marketplace-collected sales as fully satisfying your sales tax duty there - but this varies by state, and some states still want marketplace sellers to register once they cross a certain sales volume, even though the platform is the one remitting the tax. Confirm with each relevant state's tax agency rather than assuming.

Does Etsy or Amazon report my income to the IRS?

They may send you and the IRS a Form 1099-K once your payments cross the current reporting threshold and transaction count for the year - but that form reports your gross sales, not your profit, and you owe income tax on your net earnings regardless of whether a 1099-K is issued.

If the marketplace already collected sales tax, do I still owe income tax on that sale?

Yes. Sales tax and income tax are entirely different taxes. Sales tax is the buyer's tax, passed through by the platform to the state. Income tax is calculated on your own profit from the sale and is your responsibility, separate from anything the platform collected at checkout.

What if I sell on a marketplace and also have my own website?

Marketplace facilitator laws only cover sales made through the marketplace itself. Sales through your own website are generally your own responsibility for sales tax collection and remittance, based on your nexus in each state - so you may have duties on your own-site sales that you don't have on your marketplace sales.

How do I find the current sales tax threshold or 1099-K threshold?

These figures have changed due to legislation and vary or adjust over time, so don't rely on an older number. Check irs.gov for the current Form 1099-K reporting threshold, and check the specific state's department of revenue or taxation website for that state's current economic nexus and marketplace registration thresholds.

This article is general information, not legal, tax, or financial advice.