Marketplaces continue to grow and disrupt the economy, changing both retailer and consumer behavior. Third-party marketplace sales are expected to account for 59% of all global ecommerce by 2027, and 38% of global retail sales growth. It’s no surprise that this growth will occur, as if you can name it, there’s probably a marketplace for it. There are marketplaces for groceries, parking spots, restaurant food, teaching materials, used bicycles, wine, and much more.

With all of this growth, retailers understandably want a piece of the action. But while operating a marketplace promises rewards, there are risks to be aware of along the way. Some of the biggest challenges for retailers expanding into the marketplace facilitator space include: mitigating the complexity of U.S. marketplace facilitator laws, navigating global requirements for marketplaces, and providing a seamless customer experience.

Mitigating the complexity of U.S. marketplace facilitator laws

Every state with a general sales tax has a marketplace facilitator law that shifts the obligation to collect and remit sales tax from the seller to the marketplace facilitating the sale. Marketplace facilitator laws began to appear in 2017, and have dramatically increased since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc.

A retailer that becomes a marketplace therefore also becomes responsible for collecting, remitting, and reporting the tax due on third-party sales. Retailers taking on the responsibility of a marketplace need to determine where they have nexus, a connection that establishes a sales tax obligation. The two most common ways to create nexus are:

1) Physical presence in a state, including third-party inventory held in a marketplace facility

2) Sales activity in a state, known as economic nexus.

Marketplaces with many fulfillment centers often have both physical presence and economic nexus, as do the large retailers that increasingly are becoming marketplaces. Marketplaces that are not collecting everywhere must also consider where their sellers have nexus, because while the marketplace may not be responsible, their sellers are.

Navigating global requirements for marketplaces

Marketplaces operating in the global market face even more complexity. The United Kingdom and European Union now require online marketplaces — as the deemed supplier — to collect, remit, and report value-added tax (VAT) on certain transactions. The U.K. further requires marketplaces to identify the value of each transaction, to report where each seller’s goods were at the time of sale, and to determine whether the seller is a U.K. or foreign business.

Providing a seamless customer experience

Whether buying directly from a retailer or from a third party, consumers want a seamless experience. This can be challenging for direct sellers to provide. For retailers operating a new marketplace, it can be even more complex.

Consumers today expect to be able to purchase, receive, and return items wherever is most convenient for them. They’re accustomed to the buy online, pickup in store (BOPIS) or click-and-collect options that many retailers now offer. Data from Avalara’s holiday readiness survey shows that consumers plan to spend less this year, so it’s critical for marketplaces to provide the best experience to win business from their competition.

As retailers expand and grow to take advantage of the explosion in marketplaces, it’s important to remember how they trigger new tax compliance obligations, especially for global sales, and provide a seamless experience that allows them to meet customers where they are.

George Trantas is the senior director of global marketplaces at Avalara. In his role, George oversees the business development operations strategy for Avalara’s global online marketplace business. George has extensive experience leading business development strategies in the ecommerce and marketplace industry. Prior to Avalara, George was vice president of client success commerce services at Pitney Bowes. He also spent more than four years at eBay where he supported the logistics, motor parts, and emerging verticals business units. George holds a Bachelor’s of Business Administration and Marketing from Elon University.