What started as a social media platform for entertaining videos is slowly transforming into a social commerce platform that offers an integrated e-commerce feature known as TikTok Shop. This feature allows sellers, creators, and companies to sell products directly to their platform users.
This built-in commerce solution launched in 2022 includes several shopping formats: live shopping, shoppable short videos, product showcases, and shop tabs.
It is integrated and connected with Shopify, WooCommerce, Salesforce Commerce Cloud, BigCommerce, Magento, and other leading commerce platforms and is currently available in Indonesia, Malaysia, the Philippines, Singapore, Thailand, the United Kingdom, the United States, and Vietnam.
Like any e-commerce operation, sales tax compliance is essential for sellers and the platform. In the context of the US market, a key question arises: is TikTok Shop subject to Marketplace Facilitators’ laws in the US, and who bears the responsibility for collecting and remitting sales tax?
Sales Tax Collection and Remittance
Like Amazon, TikTok Shop should comply with marketplace facilitator laws in various US states. These laws transfer the tax reporting liability from the original vendor to the platform operator. The agreed Terms and Conditions between the platform operator and supplier indicate that the TikTok shop is responsible for the underlying tax reporting.
Concerning the validity of the data on the products listed on the platform, the liability remains with the original vendors. The vendor is responsible for handling resale certificates.
Relevant Notes for the Vendors on TikTok Shop
Although the platform operator collects and remits sales tax on behalf of the sellers, it’s recommended that suppliers have a monitoring-controlling tax tool in place for these operations. Furthermore, sellers should keep an accurate record of all sales should the remittance and filing ever be questioned.
Even the platform operator is responsible for collecting and remitting sales tax for the turnover made on the controlled marketplace; if sellers have nexus in a state, in some cases, they need to register for sales tax and file state-based returns.
As sales tax laws in US states frequently change, sellers should stay informed about updates regarding rates and thresholds in the jurisdictions where they have sales. An additional consideration is to keep track of what types of products and services are subjected to sales tax as more and more are included.
It is becoming evident that people no longer use social media only to connect with friends and family. It is also a way for businesses to communicate with customers and promote and sell products. More and more businesses, especially small businesses, are turning to social commerce and utilizing features like TikTok Shop to engage with customers and further grow their business.
The complexity of marketplace facilitator laws and calculations of the economic nexus thresholds for suppliers based in the US or outside the US make tax compliance difficult for online businesses. A proper compliance system is of elementary importance to this business ecosystem.
Aleksandar Delic
1stopVAT Senior Indirect Tax Researcher (Global Content)
Aleksandar Marinkovic
1stopVAT Tax Researcher