Marketplace Facilitator Laws 2026: Amazon, Etsy, and Platform Sales Tax

What Marketplace Facilitator Laws Changed

Before 2019, if you sold products on Amazon, Etsy, or eBay, you were responsible for collecting and remitting your own sales tax — even if the platform handled the payment processing. This created a compliance nightmare for small sellers, who had to register in every state where they had customers and track thousands of individual transactions.

Marketplace facilitator laws (also called "Marketplace Fairness Act" laws) shifted this responsibility. As of 2026, all 50 states and DC require marketplace platforms to collect sales tax on behalf of their third-party sellers. This means:

• Amazon collects tax on all FBA and most FBM sales
• Etsy collects tax on all physical and digital sales
• eBay collects tax on most sales (with some exceptions for vintage and handmade items)
• Shopify Marketplace collects tax on behalf of its sellers
• Airbnb and VRBO collect tax on short-term rentals

Amazon's Sales Tax Collection Policy

As the largest e-commerce platform in the world, Amazon's sales tax policy affects millions of sellers. Here's how it works in 2026:

FBA sellers (Fulfillment by Amazon):

Amazon handles everything. They store your inventory, process orders, collect sales tax, and remit to all state tax authorities. You never need to register for sales tax or file returns for your FBA sales — Amazon takes care of it all. The tax collected is based on the customer's shipping address (destination-based) for most states.

FBM sellers (Fulfillment by Merchant):

Amazon collects tax on all FBM sales as well — even though you handle the shipping yourself. The only exception is if you're enrolled in Amazon's "Tax Exempt" program or if you're making sales to tax-exempt customers. For the vast majority of FBM sellers, Amazon handles tax collection automatically.

Important exception: If you're an FBM seller in a state where Amazon doesn't have a physical presence (warehouse, office), there may be some states where you still need to collect tax yourself. However, Amazon has fulfillment centers in 20+ states, so this exception applies only in a handful of cases.

Etsy's Sales Tax Collection Policy

Etsy has a slightly different approach to sales tax collection:

• Digital items (downloadables): Etsy always collects tax on digital items in all states that tax digital products. No seller action required.
• Physical items: Etsy collects tax on all physical item sales shipped to customers in all 50 states and DC. This includes handmade items, vintage items, and craft supplies.
• Custom orders: Etsy collects tax on custom orders as well — including custom digital items and custom physical items.
• Patterns and templates: These are digital items and are automatically taxed by Etsy.

Etsy's collection system is automated and seamless. When a buyer checks out, Etsy calculates the correct tax rate based on the buyer's shipping address and the item's taxability. The tax is collected from the buyer and remitted to the state by Etsy. As a seller, you don't need to do anything — but you should keep records of all sales for your own income tax reporting.

What Marketplace Laws Mean for Freelancers

If you're a freelancer who also sells digital products or physical items through a marketplace (templates, courses, merchandise), marketplace facilitator laws simplify your life — but they don't eliminate all your obligations. Here's what you still need to do:

1. Track marketplace sales separately from direct sales

If you sell through both Etsy (marketplace) and your own website (direct), you need to track them separately. Marketplace sales have tax collected by the platform; direct sales require you to collect tax yourself if you have nexus.

2. Report all sales on your income tax return

Even though a marketplace collects the sales tax, you still must report the full sales amount (including tax) on your Schedule C (Form 1040) for income tax purposes. The sales tax collected by the platform is part of your gross receipts — you'll take a deduction for the tax remitted by the platform.

3. Register for sales tax if you have direct sales nexus

If you have $100,000+ in combined sales (marketplace + direct) to a state, you may have economic nexus and need to register. Even though the marketplace handles tax on marketplace sales, you must register for your direct sales. Some states count marketplace sales toward your nexus threshold; others don't.

4. File returns that include marketplace sales

When you file your sales tax return, include all sales — both marketplace and direct. The state will give you a credit for tax already remitted by the marketplace. For example:

States With Unique Marketplace Rules

While most states follow the standard marketplace facilitator model, a few have unique rules that affect freelancers and small sellers:

California: California's marketplace law (effective Oct 1, 2019) requires marketplaces to collect tax on all sales. However, California also requires sellers to obtain a separate seller's permit if they make more than $100,000 in total annual sales (including marketplace sales). Even though the marketplace handles tax collection, you still need a permit for reporting purposes.

New York: New York's marketplace law applies only to marketplace sales where the seller has economic nexus ($100,000 in-state sales). If you're a New York seller with less than $100,000 in New York sales, you don't need to register — the marketplace handles everything. If you exceed $100,000, you must register and file returns that reconcile marketplace and direct sales.

Pennsylvania: Pennsylvania's marketplace law has a $100,000 threshold for marketplace sellers. If you make less than $100,000 in Pennsylvania sales, you don't need to register — the marketplace handles it. If you exceed $100,000, you must register and file returns.

Texas: Texas has a unique system where marketplace sellers must still register and file returns, but they get a credit for tax remitted by the marketplace. Texas is one of the most administratively burdensome states for marketplace sellers.

Best Practices for Marketplace Sellers in 2026

1. Understand your obligations by state: Each state has different rules for marketplace sellers. Some require registration regardless of sales volume; others only require registration above a threshold.
2. Keep marketplace reports: Download monthly sales tax reports from each marketplace (Amazon, Etsy, eBay) and keep them with your tax records. These prove the tax was collected and remitted on your behalf.
3. Track your total sales by state: Use a tool to track combined sales (marketplace + direct) by state. This helps you determine when you hit an economic nexus threshold.
4. Don't rely solely on the marketplace: If you have a separate website or make offline sales, you're responsible for collecting tax on those sales directly. Use our sales tax calculator to get the correct rates.
5. Consider a sales tax professional: If you sell through multiple marketplaces AND have direct sales in more than 3 states, a sales tax professional can save you significant time and prevent costly mistakes.

The Bottom Line

Marketplace facilitator laws have dramatically simplified sales tax compliance for freelancers and small sellers in 2026. Amazon, Etsy, eBay, and other platforms now collect tax on behalf of sellers in all 50 states and DC. However, this doesn't eliminate all your obligations: you still need to track combined sales for nexus purposes, report all sales on your income tax return, and handle direct sales on your own. Some states (notably Texas, California, and New York) have extra requirements for marketplace sellers. The key is to understand your state-specific obligations, keep good records, and use our sales tax calculator to verify your rates. With the right system, marketplace selling can be nearly sales-tax-free for your administrative time — allowing you to focus on your craft instead of compliance.