In recent years, states have shifted the burden for sales tax collection and reporting to online marketplaces, not individual sellers. If you sell products on Amazon, the law says that Amazon is responsible for calculating and charging the right amount of sales tax for customers in different regions. These rules are called marketplace facilitator laws. Is Shopify a marketplace facilitator, too?
Is Shopify a Marketplace or a Platform?
Shopify is an eCommerce and software-as-a-service platform, not an online marketplace. Shopify offers web hosting and store customization tools, helping business owners set up their own store websites. This is very different from marketplace websites where customers browse products from many different sellers in the same place.
Examples of Online Marketplaces
Amazon, Etsy, eBay, and Walmart are all marketplace facilitators. Unlike Shopify, these brands operate digital storefronts where consumers and business customers can browse items and purchase products.
But doesn’t Shopify provide the tools that store owners use to sell products and process payments? Yes, but the term marketplace facilitator doesn’t apply in this situation.
As a business owner with a Shopify-powered store, you have complete control over which products you sell, how, when, to which markets, and where you store inventory. You can choose different payment processors, shipping companies, and other website integrations. Walmart or Amazon sellers don’t have the same freedom.
Marketplace Facilitators Explained
In simple terms, a marketplace facilitator is an online business that provides a sales platform for third-party merchants. For example, Walmart has a branded website with product categories it defines, from “Women’s Shoes” to “Gaming Laptops.”
Merchants can sign a contract with Walmart to sell their products on the site. Many marketplace facilitators receive a percentage of seller revenue. They also handle the logistics of sales — order fulfillment, inventory management, shipping, and warehousing.
Why Do You Need To Know About Marketplace Facilitators?
For eCommerce businesses, understanding whether Shopify is a marketplace facilitator matters for sales tax compliance. That way, you can avoid running into an audit or accidentally overpaying.
In a way, Shopify is the digital version of a commercial landlord. Shopify provides the URL “real estate,” and you run your eCommerce website as you see fit. That means your business is responsible for collecting, paying, and filing any applicable sales tax.
Don’t Panic: Sales Tax Laws Explained
You don’t have to collect sales tax from every person who buys from your website. You only need to register for sales tax in states where you have a physical or economic nexus.
A physical nexus includes your office, warehouse, or employee locations. That’s why you have to collect sales tax for your home state, no matter how many sales you make.
Sales tax laws in most states have a minimum sales threshold — usually $100,000+ per state. Depending on the size of your store, you’re not likely to hit the economic nexus minimums.
Note: At StayTuned Digital, we’re experts on Shopify, not tax laws. State tax laws change frequently, so it’s smart to work with a tax professional to understand your company’s obligations.
Manage Your eCommerce Store Smoothly
Shopify may not be a marketplace facilitator, but it offers excellent tools for streamlining your business operations. Partner with trusted apps to simplify dropshipping, print-on-demand, order fulfillment, bulk pricing, and other essentials. Discover the possibilities right away.