Marketplace Tax
Tax regulations for online marketplaces are strikingly different from the tax regulations applied to normal stores. Marketplaces do not sell physical items. Instead, they make money through commissions and fees and the vendors on the marketplace sell the items. So how does the marketplace get taxed when you, the merchant, make a sale? It’s fascinating.
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Marketplace Tax Overview
As a marketplace, sales tax becomes a confusing web of regulations, stipulations, and demands. So much so that we have opted to work with a dedicated team of tax compliance professionals, provided by Avalara. Avalara specializes in tax laws and regulations pertaining to e-commerce and online marketplaces and will ensure everything is done properly and on time.
Online marketplaces have to monitor “nexus establishment” on a per-location basis. Nexus is established if the marketplace exceeds a total number of, or value of, sales to a specific geographic zone. Once the marketplace has established nexus in a geographic zone, sales tax must be charged on items sold by the marketplace. If nexus has not been established, the marketplace does not have to charge sales tax on items sold to said location.
The above implies that, as a new marketplace, until we establish nexus in the geographic regions we sell to (per state in the United States) that we will not be charging sales tax. This puts you, the merchant, in an interesting situation. [dephoro] Marketplace charges a delightfully low commission on items sold, and sales tax will not apply to sales early on. You can use this opportunity to increase your margins or to sell your merchandise at lower prices as a perk for your supporters. A financial buffer zone has been made available to you for a limited time.
Merchant Tax Compliance
Upon registering as a merchant on the [dephoro] Marketplace, part of your onboarding process will include registering your company with our third-party tax compliance service, Avalara. When the time to file taxes rolls around, Avalara will assist us remitting taxes associated with the [dephoro] Marketplace on behalf of all of our merchants.
To ensure your products remain tax compliant, please do not alter the pre-set tax code. They should not be visible to you, but in the event that it is somehow made visible through a bug, do not alter it. We regularly go over each of our categories, assigning specific tax codes to them which apply to all products within said category.
For that reason it is vitally important to list all of your products in the most accurate category. If you need us to add a category, understanding that it has direct tax implications, please do not hesitate to let us know. We will happily add new categories as they are needed, along with the tax codes that govern them.
