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May 15, 2024

Unlocking Amazon Sales Tax Nexus: Do I Need to Register?

Welcome to another episode! Today, we’re diving into the complexities of Amazon FBA and US sales tax compliance with Jared Smithson of RJM Tax Exemption. Jared’s team specializes in helping American, UK, and other international businesses navigate the ever-changing landscape of US sales tax. With over 5,000 businesses under their belt, they’re the perfect guide to ensure your e-commerce brand scales smoothly without unnecessary tax burdens.

[00:00:00] – “Need to File Sales Tax Returns”
[00:04:55] – “Necessity of Paying Sales Tax”
[00:06:04] – “Penalties for Not Paying Sales Tax”
[00:13:10] – “Nexus for Non-Marketplace Platforms”
[00:15:16] – “Using Resale Certificates with Wholesalers”
[00:16:55] – “Corporate Structures and Sales Tax”
[00:18:49] – “Mistakes by Established Sellers”
[00:22:12] – “Acquiring a Business with Tax Liabilities”
[00:23:33] – “Sales Tax for Non-Marketplace Platforms”
[00:27:13] – “Managing Sales Tax for New Platforms”
[00:30:08] – “Need to File Sales Tax Returns”
[00:31:45] – “Special Offer for Listeners”
[00:33:33] – “Closing Thoughts”

What is Sales Tax and Why Does it Matter for Amazon Sellers?

Let’s break it down. Sales tax, essentially the US version of VAT, is a tax levied on the sale of specific goods and services. The rate varies significantly by state, county, and even city, with over 11,000 jurisdictions to keep track of! But here’s the catch: even if you’re based outside the US, you can still be liable for sales tax under a concept called “sales tax nexus.” Simply put, nexus signifies a substantial connection with a state, which can be established through physical presence or exceeding economic thresholds. Failing to register for sales tax when required can lead to hefty penalties and back taxes.

The Common Misconception and How to Avoid It

Many sellers mistakenly assume Amazon collecting and remitting sales tax in certain states absolves them of all responsibility. While this may simplify things in some cases, it’s crucial to remember that individual state regulations vary. Some states might exempt sellers solely on Amazon, while others consider economic thresholds or physical presence (like using an Amazon fulfillment center) as triggers for registration. Additionally, some states, like Washington and Texas, have unique legislation requiring registration even if you only sell on Amazon.

Taking Action: How to Register for Sales Tax

The good news: registering for sales tax is generally a straightforward process. Most states allow you to register online through their Department of Revenue website and obtain a sales tax certificate. This process typically takes 1-2 hours and requires your Employer Identification Number (EIN) from the IRS. Remember, many sellers overlook obtaining an EIN because Amazon allows them to operate without it. However, an EIN is crucial for tax compliance.

Reseller Certificates and US Business Structures

While this episode focuses on private label and custom product sellers, it’s important to note that if you purchase inventory from US wholesalers, you can likely obtain a reseller certificate to avoid paying sales tax upfront. This certificate, based on your shipping address, allows wholesalers to recognize you’re not the end consumer.

Here’s some good news for international sellers: you don’t necessarily need a US LLC or Corporation to sell on Amazon USA. Your existing UK Ltd company can suffice, provided you obtain an EIN.

Beyond the Basics: Considerations for Established Businesses

For established businesses with significant sales volume, incorporating a US entity offers advantages. A US corporation allows you to open a US bank account, potentially securing better exchange rates and facilitating relationships with US suppliers.

Common Mistakes Established Sellers Make (and How to Avoid Them)

Established sellers often fall into the trap of expanding to multiple platforms like Shopify without considering the sales tax implications across different channels. Remember, Amazon might store your products in various states, while Shopify doesn’t collect sales tax on your behalf. This can lead to significant tax liabilities down the line if not addressed.

Expanding Your Reach: Sales Tax on Other Platforms

The US categorizes businesses as either marketplace facilitators (like Amazon) or “everything else” (direct-to-consumer sites). While Amazon takes care of sales tax collection, other platforms leave this responsibility to you. This means monitoring physical and economic nexus across relevant states, registering for sales tax, collecting tax at checkout, and filing sales tax returns. Remember, an audit can lead to hefty penalties if you haven’t complied.

Sales Tax Filing: Don’t Forget!

Even if you’ve registered and Amazon is collecting and remitting sales tax in certain states, you’re still responsible for filing sales tax returns.

How RJM Tax Exemption Can Help Your Amazon Business

RJM Tax Exemption offers a range of services to help Amazon sellers navigate the complexities of US sales tax. They assist with obtaining EINs, registering for sales tax in relevant states, and filing sales tax.

All Amazing FBA listeners can book a free 30-minute consultation with RJM Tax Exemption by clicking the link in the description or contacting jared@rjmtaxexemption.com and mentioning this podcast to claim your 20% discount.

Don’t let US sales tax become a roadblock to your Amazon FBA success! Take control and ensure compliance with the expert guidance of RJM Tax Exemption.

Here’s how you can get started:

  • Free Consultation: Schedule a free 30-minute consultation with the RJM Tax Exemption team by clicking the link in the description below. This consultation allows you to discuss your specific situation and get personalized advice.
  • 20% Discount: Claim your exclusive 20% discount on RJM Tax Exemption’s services by mentioning this podcast when you contact them. You can reach them via email or by clicking the link for the free consultation.

Remember, proactive sales tax management is crucial for a smooth-running and profitable Amazon FBA business. Don’t wait until it’s too late! Take action today and ensure your brand’s continued success on the US marketplace.

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Michael Veazey

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