What ecommerce platforms do (and don’t do) for sellers

If selling online helped many small businesses survive the worst of the pandemic, today it helps them drive growth. While the exponential expansion ecommerce experienced in 2020 and 2021 may have slowed, the overall upward trend of ecommerce continues. Online retail sales surpassed $1 trillion for the first time ever in 2022. 

It’s easy to see why. Websites can be seen by people living down the street, across the country, and around the globe. Selling online allows businesses to engage with consumers scrolling social media platforms or exploring virtual worlds. Ecommerce can even offer insights into customer buying habits and other trends. 

All good things.

But growth usually comes at a cost. The more sales you make in new markets, the more likely you are to establish new tax obligations. Continued success depends, in part, on collecting, remitting, and filing all taxes owed.

So, can your ecommerce platform help you handle sales tax?

The answer is: It depends. There are thousands of ecommerce platforms on the market, and each has different features. Some cover certain sales tax requirements automatically, some don’t, and many will manage aspects of sales tax compliance as an add-on.

In this article, we’ll address:

• What is an ecommerce platform (and what isn’t)?
• Does my ecommerce platform collect sales tax? 
• How do I make sure my ecommerce platform is collecting sales tax?

Read on to gain a better understanding of what ecommerce platforms will and won’t do for your business.

Basically, an ecommerce platform is what your website uses so that you can sell online. It’s a software application that connects online sellers and buyers, permitting them to conduct business over the internet. Every business that sells goods or services online, including online marketplaces, needs a platform to make those sales happen.

At a minimum, ecommerce platforms offer ecommerce businesses a way to display the products or services they sell and consumers a way to purchase those products and services. Ecommerce platforms track inventory, order fulfillment, and customer purchases/preferences. Many offer a space for customer reviews and/or support as well as other tools and services.

Each ecommerce platform is geared toward a particular audience, and each tailors its offerings with that audience in mind: An ecommerce platform perfectly suited to a small startup for business-to-consumer (B2C) selling likely wouldn’t be the best platform for a business-to-business (B2B) multinational enterprise company, or vice versa.

Ecommerce platforms differ from online marketplaces in two key ways:

• Who controls the look, feel, and function of the website
• Who is responsible for sales tax

Ecommerce platforms like Magento, Shopify, WooCommerce, etc., enable businesses to sell online through their own webstore. The merchant controls the look and feel of the website, as well as its form and function. It’s up to the merchant to build and maintain the website (or pay to have it built and maintained).

Online marketplaces like Amazon, eBay, Etsy, etc., essentially function as an ecommerce platform for their third-party sellers. Yet the marketplace — not the individual third-party sellers — builds, maintains, and controls the look, feel, and function of the website. 

Just about anyone can sell through an online marketplace with minimal effort because it doesn’t require setting up or maintaining a separate ecommerce store. Establishing your own ecommerce store is a bigger lift.

One of the first decisions a business needs to make after determining to sell goods or services online is whether to sell through a marketplace, directly to consumers, or both. That decision will influence the type of ecommerce platform needed. If you plan to make direct sales through your website as well as third–party sales on a marketplace, you’ll want an app that integrates with your marketplace the way Avalara integrates with Amazon, eBay, Etsy, and many other marketplaces.

Sales tax is something else to consider when deciding which ecommerce platform is best for your business, as you’ll likely be required to collect and remit sales tax in at least one state. 

When it comes to sales tax, the fundamental difference between an online marketplace and an ecommerce platform is this: Online marketplaces are generally required to collect and remit sales tax on behalf of their third-party sellers; ecommerce platforms are not required to collect and remit sales tax for the merchants that use them.

The reason for this essential difference is that all states that have a statewide general sales tax have enacted marketplace facilitator laws requiring online marketplaces to collect and remit sales tax for all transactions occurring through the marketplace platform. This doesn’t necessarily absolve third-party sellers from all sales tax obligations because some states require marketplace sellers to register and file returns even if they only sell through a marketplace. However, marketplace facilitator laws do remove the burden of sales tax calculation, collection, and remittance for marketplace sellers. 

Some ecommerce platforms will also automatically calculate and collect sales tax for merchants. Others won’t. And some will handle sales tax for an extra cost. 

Sales tax for ecommerce is complex. Whether your ecommerce platform calculates and collects sales tax for your business depends on which ecommerce platform you use. 

When deciding on an ecommerce platform, it’s important to research what steps you’d need to take to enable the ecommerce platform to collect sales tax for you. Is it as easy as flipping a switch? Do you need to sign up for a sales tax service that exists within the platform? Does it cost extra for the ecommerce platform to handle sales tax, or is sales tax collection included in the base fee? Could you outsource sales tax calculation?

Many free in-house sales tax solutions offered by ecommerce platforms are based on ZIP codes and tax codes: They calculate sales tax rates based on the ZIP code of the shipping address and the tax code for the product. Such ecommerce sales tax services may not be able to pinpoint the proper rate if a ZIP code contains multiple overlapping sales tax jurisdictions (e.g., more than one sales tax rate). Likewise, they may not account for exceptions to sales tax rules, such as sales tax holidays — periods when certain products are temporarily exempt from sales tax or taxed at a reduced rate. 

More tailored sales tax solutions, available at a cost, tend to be more accurate. 

Ecommerce platforms that partner with a sales tax service provider like Avalara typically offer the sales tax features that are most important to their customers. “Each ecommerce platform has optimized a feature set that meets their own desired customer profile and their marketing pitch, their value propositions,” explains India Anderson, Director of Product Management at Avalara. As a result, the features aren’t the same from platform to platform.

It’s practically impossible to detail how every ecommerce platform handles sales tax because there are thousands of ecommerce platforms and each is unique. What follows is a glimpse of the sales tax features provided by a few of our partners. 

BigCommerce is an open software-as-a-service (SaaS) ecommerce platform designed for fast-growing and established brands. BigCommerce offers a whole suite of sales tax compliance tools to businesses that enable its sales tax feature and purchase a sales tax app, like Avalara AvaTax, through the platform. 

As the preferred partner for tax compliance, Avalara AvaTax integrates seamlessly into websites powered by BigCommerce. If your ecommerce store is already up and running, setup can be relatively quick: With minimal effort, your website will be ready to collect and remit sales tax in your home jurisdiction and in jurisdictions where you know you have a sales tax obligation. Uploading your product catalog into AvaTax will help you identify the proper tax rate for each product in each location, since product taxability can vary from jurisdiction to jurisdiction.

The AvaTax heat map tracks where you have customers and alerts you when your sales have reached a level where you should consider registering in a new state. All states with a sales tax require remote businesses to register for sales tax once their sales into the state exceed a certain sales and/or transaction threshold, and since these economic nexus thresholds vary from state to state, monitoring them can be a challenge. The heat map helps ease that burden.

AvaTax for BigCommerce is available via the BigCommerce admin portal starting at $110 for 500 transactions. Should your business need additional sales tax support, such as preparing and remitting returns or calculating, collecting, and remitting value-added tax (VAT) on sales to customers in other countries, Avalara has add-on tools that can help. Your Avalara or BigCommerce representative can provide more details.

Learn more about how BigCommerce and Avalara can help you manage sales tax in this customer story.

Acquired by Adobe in 2018, Magento offers several open-source ecommerce platforms tailored to different audiences, from small businesses to enterprise businesses. Third-party add-ons can connect sellers to online marketplaces. Magento will collect and remit sales tax if you sign up for the service. Pricing plans are based on usage.

Avalara and Magento partner to simplify sales tax compliance via features that include:

• Address validation
• A vast catalog of product taxability rules
• Real-time calculation of customs duties and import taxes 
• Exemption certificate management
• Monitoring new sales tax obligations
• Sales tax filing and reporting

Learn more about how Magento and Avalara can help you manage sales tax in this customer story.

Among other services, Salesforce has ecommerce platforms for B2B commerce and B2C commerce. Salesforce will calculate and collect sales tax for users who sign up for the service, for a fee. Prices vary depending on usage.

Avalara and Salesforce have partnered to simplify sales tax compliance for businesses using a Salesforce ecommerce platform. In fact, Avalara AvaTax is certified in all three Salesforce Clouds where tax calculation is required (Sales Cloud, Commerce Cloud, and Salesforce CPQ). Sales tax compliance features offered by Avalara in Salesforce include:

• Address validation
• A vast catalog of product taxability rules
• Real-time calculation of customs duties and import taxes 
• Exemption certificate management
• Monitoring new sales tax obligations
• Sales tax filing and reporting

Shopify is a cloud-based ecommerce platform with options for small, midmarket, and large omnichannel businesses worldwide. Shopify now offers its own sales tax solution: Shopify Tax calculates and collects Shopify sales tax and also tracks sales tax liability across jurisdictions. There’s no charge for the service for your first $100,000 in U.S. online sales each calendar year. More pricing information is available at Shopify Tax. 

For businesses on Shopify Plus, Avalara AvaTax can be added to your plan for $250 per month and works within your existing dashboard. Avalara sales tax compliance features available to Shopify Plus merchants include:

• Address validation
• A vast catalog of product taxability rules
• Monitoring new sales tax obligations
• Sales tax filing and reporting

Learn more about how Shopify and Avalara can help you manage sales tax in this customer story. And if you’re a Shopify Plus merchant, learn how to add Avalara AvaTax to your Shopify Plus plan.

WooCommerce is a customizable, open-source ecommerce platform that helps merchants and developers of all sizes build successful businesses — from those just getting started to established enterprise brands. It’s built on WordPress and helps power approximately 3.4 million stores.

Avalara has a prebuilt integration with WooCommerce. Avalara sales tax compliance features for WooCommerce include:

• Address validation
• A vast catalog of product taxability rules
• HS code classification and real-time calculation of customs duties and import taxes 
• Monitoring new sales tax obligations
• Streamlining aggregation of omnichannel sales transaction data
• Sales tax filing and reporting
• Flexibility for checkout and payment options (e.g., buy now, pay later)

For businesses in need of a more customized sales tax solution, AvaTax software developer kits allow developers to build their own integration. 

Learn more about how WooCommerce and Avalara can help you manage sales tax in this customer story with Xero Shoes.

The information provided above just scratches the surface. As you dive deeper into researching ecommerce platforms and sales tax compliance solutions, you’ll discover more nuanced differences between options. 

For example, BigCommerce and WooCommerce users can access multiple features all within one Avalara app, while Avalara’s Shopify integration provides the core tax service as well as Shopify Plus functionality. By contrast, there are 10 different Avalara apps (aka, connectors) for the various financial platforms in Salesforce. Salesforce is a uniquely large variety in their financial platform app offerings, according to India Anderson.  

“For some ecommerce systems, one integration works for all uses, whether you’re SOHO [small office/home office] or enterprise. The app stretches with you,” explains Anderson. “For others, different services require separate apps and integrations.”

Do you already have an ecommerce site and want to know about the available options for sales tax on your ecommerce platform? Most ecommerce platforms allow users to integrate sales tax software into their online store. As noted above, many partner with sales tax software providers like Avalara. If they don’t, they likely have a way for you to integrate your own solution. 

Reach out to your ecommerce platform provider if you’re unsure about how to handle sales tax. They can explain your options. 

If you already have a sales tax solution for your business and are branching into online sales for the first time, it may be wise to select an ecommerce platform that has a built-in sales tax solution or integrates with a sales tax software provider. 

Avalara has more than 1,200 signed partner integrations, the largest network of any sales tax software provider. These plug-ins work with ecommerce platforms, accounting software, point-of-sale systems, order management systems, marketplaces, customer relationship management tools, and more. 

Avalara offers six core cloud-based product categories:

• Tax calculation (e.g., sales tax, VAT)
• Returns and reporting of compliance data (e.g., sales tax returns; business reporting)
• Documents (e.g., exemption certificates, 1099s)
• Licenses (e.g., business licenses and registration)
• Fiscal reporting (e.g., e-invoicing)
• Data reporting (e.g., product categorization)

Learn more about our sales tax solutions for retailers.

Furthermore, the Avalara API allows developers to build new integrations tailored to specific needs.

It’s important for online sellers to get sales tax right. In addition to putting your business at risk of owing back sales tax, penalties, and interest, mistakes can lead to disgruntled customers. 

But you have a lot on your plate if you run a small ecommerce business. You may also have a lot in your garage or spare bedroom if you fulfill orders yourself. It can be hard to find time to eat and sleep, much less keep on top of growing business obligations. Automating sales tax collection and remittance can help reduce your sales tax burden.

An ecommerce platform can be a powerful tool in helping your business grow and achieve its potential. Make sure you’re using the best option for you by selecting an ecommerce platform with the integrations and features your business needs.