Sales tax is added to any taxable product. FBA Sales tax is no different, you collect it, you’re responsible and you have to pay it out to the government.
Alex Oxford founder of TaxValet – eliminates the hassle and stress of US sales tax for domestic and international companies.
What is US sales tax?
A complicated mess!
It’s very different to other countries eg UK. Many sellers are used to a VAT system.
Sales tax is added to any taxable product.
You have to remit it in a specific state if you have sales tax nexus.
This is very different from VAT – you calculate it at the point it is due.
You collect it, you’re responsible and you have to pay it out to the government.
How can it impact e-commerce sellers?
It gets particularly tricky if you have your own website.
An online company could still have sales tax implications for FBA Sales Tax.
It used to be based on physical presence in the USA but it’s no longer the case.
Just making sales in the USA could take responsibility for FBA Sales Tax.
If it goes wrong, you will have no money from the customers but you’ll owe the tax plus fines.
Two major issues for e-commerce
- Economic nexus
- Marketplace Facilitator laws
Wayfair vs. South Dakota 2018 Supreme Court Ruling.
South Dakota wanted to tax Wayfair (big retail company)
Wayfair claimed was unconstitutional. It worked up to Supreme Court and they made it legal.
Every state in the USA has since implemented economic nexus.
It’s usually based on threshold numbers, typically:
- Number of transactions eg: 200 orders
- Revenue threshold – typically $100K, in CA $500K
What about Amazon only sellers? Is sales tax an issue for them?
Practical answer – not really such an issue.
Technically – it depends on specifics!
Marketplace Facilitator Laws
New – coming into effect over last year or so.
- Many but not all states eg CA, MI
If you’re selling exclusively on the marketplace, the mp is responding for collecting and remitting sales tax
The States aren’t being straight with companies
It’s hard to get a straight answer from the State.
In theory in many states, you can just use marketplace facilitator laws
Practical vs. Technically correct way
If you’re in the states where they have Marketplace Facilitator Laws, you COULD end up with issues.
Washington is a Marketplace Facilitator Laws has business and occupation tax (B&O tax)
About half of Marketplace Facilitator Laws states say don’t worry; half want something more.
Technically correct answer
If you reach out to the states and read statutes, they have not said that they have let sellers off.
Alex has hounded each state 20-30 times!
They wanted an officially signed letter or put it on the website.
This matters because if you’re only selling on a marketplace BUT if Amazon is giving the data to the state, the state COULD determine you had nexus in the state. And then penalise you for not submitting returns and not having a sales tax licence.
The United States is not so united!
There are over 12,000 potential business taxes in the USA.
There are different definitions of what is taxable state to state.
Eg: one state might define diapers as only for kids; geriatric ones might be taxable.
Read this – you’re on the hook if something goes wrong.
Which states to worry about most
CA, FL, TX, WA, IL
CA is a Marketplace Facilitator Laws state.
FL is NOT;
WA is – BUT they have ancillary tax
IL is not a Marketplace Facilitator Laws state yet but will be in early 2020
The single one you should worry most about is Washington State.
How to approach this practically
Figure out your exposure and liability.
If you’re just getting started, say you have FBA inventory in a state, let’s also say it’s not a Marketplace Facilitator Laws state, if it’s just $100/month, it would be such a burden, you might decide to
How do we approach non-Marketplace Facilitator Laws states?
In the states where you have nexus, or own site, you need to get a sales tax permit for FBA Sales Tax.
That technically gives you the right to transact and also the responsibility to collect tax from customers and to remit that to the states
What do you do?
- Figure out: do you need to get a permit?
- Get a permit
- Implications for international businesses (see next episode)
- Make sure your MP channels are set up to collect sales tax
It DOESN’T happen automatically.
- Do sales tax returns each month or quarter
What are the biggest misconceptions regarding US sales tax?
- That you only have sales tax nexus if you have a physical presence.
- That if you have sales tax nexus only if you have an Amazon store
- Eg if you have a website and Amazon sales, even if you only have tax nexus based on Amazon inventory
- Amazon takes care of everything for you – in many states, they are not Marketplace Facilitator Laws states. Even if Marketplace Facilitator Laws state, it’s your responsibility to set up the products correctly.
- You have to pay state income tax in every single state where you have sales tax nexus
- It is possible but not necessarily.
When does Amazon take care of this?
Amazon calculates and collects it and remits it in all Marketplace Facilitator Laws states.
If Amazon collects $100 in tax on your behalf; they will pay it the state.
But you’ll be paying $2 more to the state – Amazon is taking a percentage (around 2%) as their fee.
2-3 practical wins
- Do an analysis of where you have tax nexus
- Figure out your exposure
- Register where exposure is big
- Then start collecting and remitting tax
- You don’t have to start big; tackle the biggest issues first.
To learn more about Tax from Alex Oxford, here are the other two episodes:
Watch my full interview with Alex Oxford
[video_page_section type=”youtube” position=”bottom” image=”” btn=”light” heading=”” subheading=”” cta=”” video_width=”1080″ hide_related=”false” hide_logo=”false” hide_controls=”false” hide_title=”false” hide_fullscreen=”false”]https://www.youtube.com/watch?v=IAHIu0AnrhM&feature=youtu.be[/video_page_section]