No, Shopify is not considered a marketplace facilitator; however, the Shopify Shop app is.
This article will explain what marketplace facilitators are and how they affect your sales tax obligations, so you can stay compliant no matter how you sell your products.
What is a marketplace facilitator?
Across the U.S., states that collect sales tax have regulations that help them maximize the revenue that sales tax can generate — and this includes regulations concerning marketplace facilitators.
Although the definition varies slightly from one jurisdiction to another, marketplace facilitators are, generally speaking, companies that work with third-party sellers by providing a platform that facilitates the sale of those sellers’ products. Marketplace facilitators can operate in person or online; in fact, some of the best-known websites in the world are marketplace facilitators, including Amazon, eBay, and Etsy.
So how does a business being classified as a marketplace facilitator help states collect more sales tax revenue?
In every state that imposes sales tax, marketplace facilitators that meet a certain threshold of sales are required to collect and remit sales tax on all sales that take place on their platform. If a seller lists a teddy bear on Amazon, for example, Amazon must tax the buyer of the bear and must remit the tax amount to the state where the bear was sent.
Marketplace facilitator laws ensure that revenue is collected even when small sellers sell their items. These laws also make life easier for sellers on marketplace platforms, because they don't have to collect sales tax themselves on the transactions that occur on that marketplace.
This is why it’s important to understand that Shopify is not a marketplace facilitator. This fact has a big impact on a seller's sales tax obligations.
What sellers on Shopify need to know
While Shopify is an e-commerce platform, it’s very different from Amazon, Etsy, and other sites that are considered marketplace facilitators. That's because it does not create a centralized storefront that sellers can sell products from — and it has very little control over the operations of sellers on its platform.
When you visit the Amazon website, you’re greeted with a homepage that displays product categories, shopping suggestions, and tools for searching for items — including items from third parties. Amazon directly facilitates a customer's ability to purchase products sold by third parties by cataloging those products, promoting them, and even, in some cases, warehousing and shipping products for sellers.
In every way, Amazon meets the definition of a marketplace facilitator. So do sites like Etsy and eBay, each of which is actively involved in arranging transactions between buyers and sellers.
Shopify, on the other hand, does not do this. The Shopify website allows individual sellers to set up their own storefronts using Shopify's tools. Shopify helps sellers complete tasks such as inventory management and payment processing, but it doesn't have a centralized database of items to search and doesn't otherwise directly facilitate sales. Because of this, it's not considered a marketplace facilitator.
Why the Shopify Shop app is different
While Shopify itself is not a marketplace facilitator, the Shopify Shop app does act as a marketplace where visitors can search a database to find products from different third-party sellers, and the app does promote items to potential buyers.
Shopify Shop also offers features like Shop Pay, which facilitates payment processing and allows buyers to use the Shop App to track packages, make purchases, and engage with brands. Since Shopify Shop plays a much more active role in the seller-customer relationship, it meets the definition of a marketplace facilitator.
Because it fits within this definition, Shopify Shop began collecting, remitting, and filing sales tax for sellers on January 1, 2025.
If you sell on this platform, you won't need to collect and remit sales tax on on-platform transactions.
Staying compliant as a Shopify seller
If you use Shopify to sell products online, you need to manage your own sales tax compliance. There are many requirements to fulfill. Specifically, you'll need to do some or all of the following tasks:
Monitor nexus
States can require a seller to collect sales tax if the seller has a local presence in the state. This presence — such as an office, inventory, or employees — is called physical nexus.
For example, if you have a storefront in California, you are subject to California's sales tax rules when you sell to California buyers.
Before 2018, a physical presence was the only way to establish nexus. If you did not have a physical presence in a state, you didn’t have to pay sales tax on sales to buyers there. So say you had a storefront in California and a warehouse in Nevada — your sales to Wisconsin customers would not be taxable.
Then, in 2018, in a case called South Dakota v. Wayfair, Inc., the Supreme Court ruled that states could require a business to collect tax if it had economic nexus there — in other words, a sufficient economic connection to the state — even if it didn’t have physical nexus.
After that decision, states began establishing economic nexus rules. Under these rules, sellers who’ve had a certain number of transactions or who’ve earned a certain amount in sales in a state can be required to collect sales tax on sales to customers there.
Thanks to the Wayfair case, if you sell products on Shopify and you sell enough in a state to meet its threshold for economic nexus, you are subject to that state's sales tax rules. This means you must monitor your sales throughout the country to stay aware of where you’ve established nexus.
Register when nexus is established
As soon as you establish physical or economic nexus in a state, you must register to collect sales tax there.
Most states allow you to do this online. Doing this promptly when you establish nexus is very important, because a delay may lead to an audit or having to pay back taxes and penalties.
Correctly classify products
Not every product is taxable, but if a product is taxable and you have nexus in the state where the purchaser lives, you must charge tax on it. That means you have to understand the sales tax regulations in all the states where you’re required to collect sales tax.
These rules can be very complicated. For example, food is usually not taxable, except for candy, which usually is, and dietary supplements are sometimes taxable and sometimes not, depending on the jurisdiction.
Unfortunately, whether a product is classified as a food, a supplement, or candy can come down to tiny details, like whether the product has flour in it and what its label says.
It's important to correctly classify every product you sell and understand where it’s taxable, and then ensure that you collect the correct amount of tax on items when doing so is required. This applies to physical products, of course, but also to any digital products sold on Shopify.
Make timely filings
Once you’re registered to collect sales tax, you must submit your tax forms to the state on a regular schedule. How often you must file your tax documents depends on the state's rules and your sales volume, but it could be monthly, quarterly, biannually, or annually. This schedule can also change as your sales volume fluctuates.
Submit your forms on time, every time, to avoid penalties and reduce your risk of being audited.
Remit tax amounts
Shopify will collect the proper sales tax amount for you, but you must remit it on time.
Staying compliant as a Shop app seller
If you’re selling on the Shop app and on Shopify, you may have tax obligations to fulfill.
Typically, transactions that take place on a marketplace are a factor in determining whether you have economic nexus in a particular state. This means you'll need to factor in transactions that occur on the Shop app when determining whether nexus has been established.
Some states also require that you include marketplace transactions on your tax filings and file regular returns, even if they’re $0 returns.
You should make sure to comply with these requirements. If you are audited, your state may also request a copy of the Shopify sales channel tax collection certificate, which Shopify support can provide you.
Final Thoughts
Understanding sales tax rules is a real struggle for online sellers of all sizes, including Shopify merchants.
If you sell through Shopify but not the Shopify Shop app, you remain completely responsible for ongoing tax compliance. That being said, you can configure Shopify to calculate and collect the proper amount of tax for you via their tax engine.
If you sell through both Shopify and the Shop app, some sales taxes will be collected and remitted on your behalf, but your returns may become more complex due to the need to properly report the transactions on the marketplace.
The good news is, you can simplify all of this with the help of a Shopify sales tax app.
Numeral, for example, can integrate with your Shopify storefront, help you track sales, and alert you when you establish nexus. Numeral can also register for sales tax on your behalf, receive any mail communications, file your tax forms for you, and remit the amounts due.
