TaxJar

Texas’ Marketplace Facilitator Sales Tax Law, Explained

by Jennifer Dunn

Texas marketplace sales tax

Good news for marketplace sellers! The state of Texas now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Amazon or Walmart.

This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Texas buyers on your behalf, and remit it to the state. 

But as usual, there are always a few wrinkles here when it comes to eCommerce sales tax. 

This post will explain what online sellers need to know about the Texas marketplace facilitator law, and answer your frequently asked questions. 

Overview of the Texas Marketplace Facilitator Law

Texas’ marketplace facilitator law states that marketplace facilitators are required to remit sales and use tax on all sales into the state. A remote seller that terminates its use tax responsibilities must resume collection on the first day of the second month following any 12 calendar months where their total Texas revenue exceeds $500,000.

Quick Facts about the Texas Marketplace Facilitator Law

    • Effective date: October 1, 2019
    • Threshold: Texas’ marketplace facilitator law states that marketplace facilitators are required to remit sales and use tax on all sales into the state. A remote seller that terminates its use tax responsibilities must resume collection on the first day of the second month following any 12 calendar months where their total Texas revenue exceeds $500,000.
    • State law information: Read the full text of the Texas Marketplace Facilitator Law
  • Marketplaces that have adopted this law: 

Frequently asked Questions about Marketplace Facilitator Laws

What exactly is a marketplace facilitator in Texas?

Texas law defines marketplace facilitators as a “(i) listing or otherwise making available listing or otherwise making available for sale the tangible personal property of the marketplace seller through a marketplace owned or operated by the marketplace facilitator; and (ii) processing sales or payments for marketplace sellers.”

Online sales platforms like Amazon and eBay are considered marketplace facilitators under Texas law. 

A software like Shopify or Magento that allows online sellers to build and manage their own stores would not be considered a marketplace facilitator. 

Does this mean I can stop collecting Texas sales tax?

It depends. Every business’s sales tax situation is unique to that business. 

Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Texas. 

Example #1: You only make sales on online marketplaces. 

In this example, you only sell on Amazon and eBay. Because Amazon and eBay are both now collecting sales tax from buyers on your behalf, you are not required to collect sales tax from your buyers. (However, you may still be required to file periodic sales tax returns. See “Does this mean I can cancel my Texas sales tax permit?” below.)

Example #2: You sell on online marketplaces and your own online store and/or brick and mortar store.

In this case, you’d still be required to collect sales tax from buyers who purchase from you through your own online store (for example, via your BigCommerce or Shopify store). And you would still be required to collect sales tax from your brick and mortar customers. 

Marketplace facilitator laws only cover marketplaces. The state still requires that merchants collect sales tax from buyers via sales channels where the marketplace facilitator laws do not apply.

Does this mean I can cancel my Texas sales tax permit?

It depends. 

Texas’ marketplace facilitator law does not affect the sales tax registration requirements for existing sellers. So if you live or otherwise have sales tax nexus in Texas, then you are still required to hold a Texas sales tax permit. This also means you are still required to file sales tax returns on due dates set for you by the state.

However, if you are registered to collect sales tax in Texas and only make marketplace sales in Texas, you may be able to cancel your sales tax permit. 

But first, a word of caution. We recommend checking directly with the state or a sales tax expert before cancelling your sales tax registration. This is because your business is now on the state of Texas’ books and potentially on their radar should they decide that you still have sales tax obligations in the state of Texas. 

Final note: It’s important to assess your business before making a decision about cancelling sales tax permits. Are you in a growth stage? Do you plan to expand and think you may have Texas sales tax collection requirements in the future? Then you may want to hang on to your Texas sales tax permit rather than cancelling it and going through the administrative hassle of registering again in the future. This business decision is up to you.

Do I still need to file a Texas sales tax return?

If you are registered to collect sales tax in Texas (i.e. you have an active Texas sales tax permit) then the state still requires that you file sales tax returns.

If you only make sales via marketplaces, and all of your marketplaces collect sales tax from buyers on your behalf, then you may only be required to file a “zero return.” (This is a return showing that you do not have any sales tax to remit to the state.)

If you no longer have any sales tax to remit to the state of Texas, we recommend checking directly with the state to determine if you can cancel your sales tax registration.

Be cautious here. If you are registered for a sales tax permit and do not file, the state can assess penalties even though you don’t have any sales tax to remit! We have, unfortunately, talked to too many sellers who have found this out the hard way when a tax penalty bill arrives.

What do I do with any Texas sales tax I have already collected?

If you have already collected Texas sales tax from buyers, it is vital that you remit that amount to the state. The only way to get in serious criminal trouble in sales tax is to collect sales tax from buyers on the state’s behalf but keep it in your own pocket. 

Example:

Let’s say you sell on Amazon and Texas requires you to file and remit sales tax quarterly. Though Amazon began collecting sales tax on your behalf on October 1, if you have any sales tax in your bank account that you collected from Q3 2019, you will still need to remit that to the Texas Comptroller or face a penalty. 

Does TaxJar handle this for me? 

Yes. 

TaxJar AutoFile handles Texas sales tax automatically

TaxJar AutoFile automatically compiles your sales tax data the way the state of Texas wants it filed. For example, many states, Texas included, want sellers to break down their sales tax collected interstate (sales originating in Texas sent to another state) and intrastate (sales made from Texas to Texas.) 

If a marketplace has collected sales tax on your behalf, TaxJar reports that directly to the state so that the state is aware you have met your sales tax obligations. 

If you currently AutoFile your Texas sales tax returns, you don’t need to do a thing. It’s handled!

TaxJar Reports give you all the info you need to file manually

If you prefer to file manually, your TaxJar Reports also reflect what the Texas Comptroller wants to see on your tax return. 

Also don’t worry that you will double pay. TaxJar accounts for sales tax collected on your behalf, and only shows you the amount you owe to the state out of your pocket.

Further reading on Texas sales tax and marketplace facilitator laws:

Do you have questions or something to say about the Texas marketplace facilitator law? Start the conversation in the comments!

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