Published March 18, 2025
Sales Tax for Social Media Marketplaces
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For decades, sales tax has been a constant consideration for most retailers and sellers. However, as technology evolves and shopping trends change, new methods for shopping gain popularity, which can lead to sales tax confusion. One of the fastest growing retail outlets? Social media marketplaces.
Social media is popular for sharing updates with friends and making connections, but its marketplaces are fast becoming retail hotspots. Facebook Marketplace makes it easy for users to see a huge variety of new and used products, and Instagram Shopping and TikTok Shop curate items that customers can purchase straight through the app.
Social marketplace spending is growing rapidly and is expected to have total revenue of more than $200 billion by 2029. In 2023, sales through social channels accounted for 18.5% of total online sales — a number that’s expected to grow as Gen Z gains buying power. TikTok Shop alone saw 26% sales growth in 2023, with nearly half of users purchasing something from the marketplace at least once a month.
Social media marketplaces provide a lucrative opportunity for businesses of all sizes. Instead of paying for social media ads that drive users away from the apps, marketplace selling allows users to purchase items directly through their social media apps, streamlining the process.
But where is sales tax in all of this growth? Let’s dive into everything you need to know about sales tax for social media marketplaces.
The most common question for marketplace sellers is if they are responsible for calculating and collecting sales tax. In many states, social media marketplaces fall into the category of marketplace facilitator, meaning that a larger facilitator runs the marketplace. This group (such as Facebook, Instagram, or TikTok) is in charge of all sales tax details on behalf of the sellers. These laws shift the obligation for sales tax from each individual seller to the larger marketplace platform. Almost every state has marketplace facilitator laws, though the logistics and details vary by state.
Marketplaces fall under marketplace facilitator laws if they exceed a set transaction amount or volume in a state (e.g., $250,000 or 400 transactions per year). Sellers can be anywhere—the buyer's location determines tax responsibility.
For example, if Facebook Marketplace processes over $250,000 in sales to a state, it must calculate and remit sales tax for all transactions there.
These laws differ from standard sales tax nexus rules, where businesses establish nexus through various activities. With marketplace facilitator laws, only the marketplace’s total sales trigger tax collection—not individual seller nexus. However, marketplace sales still count toward a seller’s overall nexus threshold.
Marketplaces qualify as facilitators if their transactions exceed a state’s threshold (e.g., $250,000 or 400 sales per year). The buyer’s location determines tax responsibility.
For example, if Facebook Marketplace processes over $250,000 in sales to a state, it must handle all sales tax obligations there.
Unlike standard nexus rules, marketplace facilitator laws focus on the platform’s total sales, not individual seller nexus. However, marketplace sales still contribute to a seller’s overall nexus threshold.
Sales tax requirements vary based on the type of company and state, but adding a social marketplace adds another layer of complexity. Each platform has its own nuance about sales tax processes.
Sellers can either sell individual items (similar to a virtual garage sale) on Facebook Marketplace or sell multiple items and use it for their business. Sales tax isn't required for one-off or smaller sales (typically less than $400, depending on the state). However, for larger or more frequent transactions that meet the threshold of marketplace facilitator, Facebook and its parent company, Meta, are required to collect sales tax in states that charge marketplace sales tax. That means that no matter where the seller is located — even in states that don’t require sales tax — Facebook will collect and remit sales tax on their behalf.
Meta is considered a marketplace facilitator in most states, which means sellers don’t have to worry about sales tax for their transactions.
IG is also owned by Meta, which means Instagram’s sales tax requirements are the same as Facebook’s. Instagram is a marketplace facilitator in most states, meaning it handles sales tax collection and remittance for sellers. It manages tax calculations, payments, and refunds, removing the burden from individual sellers.
Sellers don’t need to calculate or remit sales tax for transactions on Instagram. However, they should still track sales tax records. Keeping accurate records helps sellers stay compliant and prepared for audits.
While Instagram handles sales tax, sellers must manage taxes for sales outside the platform, such as through websites or physical stores.
TikTok is registered as a marketplace facilitator in all states that require the designation. That means that sellers selling items through TikTok Shop don’t have to handle sales tax on their own. Instead, TikTok will calculate, collect, and remit sales tax for every transaction.
Each state has different rules on taxable products and services, and sales tax rates vary by seller location and fulfillment site. TikTok automatically calculates the correct tax for each transaction. its sellers.
The major social media marketplaces collect and remit sales tax, but sellers still have responsibilities. Sales tax is recorded for every transaction, so it can't be ignored.
Sellers must understand state tax laws and keep records of transactions and tax totals. This helps with audits and tracking payments to state agencies.
Sellers are also responsible for calculating and remitting sales tax on sales made outside social marketplaces, like through a website or physical store.
Social marketplace selling is growing rapidly, but it’s not without its unique sales tax considerations.Although marketplace facilitators handle most sales tax duties, sellers and businesses must still understand their tax responsibilities. Staying informed ensures compliance and prevents potential issues.
Many marketplace sellers use drop shipping, where they sell a variety of items but don’t actually hold any inventory. When a buyer selects an item, the drop shipper connects to the original source of the item and has it sent straight to the buyer. Drop shipping through a social media marketplace still falls under the marketplace facilitator laws, meaning the marketplace is responsible for all sales tax collection.
For social media marketplace sales, the buyer’s location—not the seller’s—determines the sales tax rate. A seller outside the U.S. must still collect and remit sales tax (through the marketplace) for U.S. buyers.
Likewise, items shipped outside the U.S. follow that country’s tax laws. In all international cases, social marketplaces handle tax compliance, including collection and remittance.
Many businesses sell in multiple states, and social marketplaces attract sellers by offering a broad customer reach. However, each state has different sales tax laws, which can be complex.
In social marketplace sales, the buyer’s location—not the seller’s—determines sales tax. A seller may ship to a tax-free state and owe nothing. That same item sold to a high-tax state requires sales tax collection.
Fortunately, the marketplace, not the seller, is responsible for handling sales tax in both cases.s to the marketplace, not the individual seller.
Compliance is still important for social marketplace sellers, even if they aren’t directly responsible for collecting and remitting sales tax. It’s still important to keep a detailed record of every transaction, including the sales tax amount. This information will help balance financial records and be useful in case of a return or refund. Because sellers still have to pay sales tax on items not sold directly through a social marketplace, having detailed records of marketplace transactions can help understand the total sales tax responsibility for each seller.
Social media marketplaces can be lucrative places for businesses to sell their products or services. Marketplace facilitator laws shift sales tax responsibility to the marketplace, but it’s still important to understand sales tax regulations in various states. Contact The Sales Tax People to learn more about social selling and create a unique sales tax strategy for your business.
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