For many e-commerce sellers, dealing with sales tax is about as fun as getting a root canal. But we’re going to make an otherwise painful subject as easy as possible.
This week’s podcast episode is an interview with Jennifer Dunn of TaxJar. Jennifer, though not a CPA, is an expert on topics related to e-commerce and sales tax liability.
The Big Idea
Here is one of the most important things you should know about sales tax: If you sell on Amazon via Fulfillment by Amazon using a Seller Central account, you likely have sales tax liability in 20+ states…anywhere Amazon stores your inventory.
And even if you don’t use FBA, states are passing more and more laws that require you to report the sales you make in their state, even if you don’t have tax liability there.
Topics We Covered in the Interview
Here are other important topics Jennifer covered during our conversation:
- In most states, having a physical location in the state, or having employees there, or storing inventory there (including with Amazon FBA), or selling products at a trade show there gives you nexus and means you are required to collect and remit sales tax in that state.
- If you have nexus in a state, the state expects you to collect and remit sales tax even if you make just one sale there.
- For most businesses, it becomes a question of cost-benefit analysis. If you only have a few sales in a particular state it may be more cost in terms of time and effort to collect and remit sales tax in that particular state than to just pay back taxes and penalties and interest if the state ever decides to come after you.
- Jennifer points out that regular accountants and attorneys don’t specialize in the complicated tax laws relating to interstate commerce. She highly recommends you consult with a SALT…a State and Local Tax expert. Jennifer says most of the experts they’re connected to recommend you be thinking about registering for sales tax in a state if you make more than $3,000 a year in sales there.
- These laws don’t just apply to U.S.-based businesses. They also apply to businesses based in other countries that are making sales in the U.S.
- Washington and Pennsylvania recently became the first two states to pass marketplace facilitator laws. These laws require marketplaces like Amazon to collect and remit sales tax in their state on your behalf. But this doesn’t let you off the hook. You still are required to have a sales tax with those states and report all your sales to them. Furthermore, if you have nexus in those states, that nexus applies to all your sales. So if you sell through your own website as well, you’re still responsible to collect and remit sales tax on your own website sales.
- In a couple of weeks, the U.S. Supreme Court will be hearing a case that could reverse the precedent set in 1992 in the Quill vs. North Dakota case. The way TaxJar expects the Supreme Court to rule is to remove the protections currently in place that say a business is only responsible for sales tax in a particular state if they have nexus there. If that happens, then businesses could quickly find themselves responsible for sales tax on e-commerce sales in nearly all states, whether or not they have nexus in those states.
Which States Have Amazon Fulfillment Centers?
To see which states have Amazon fulfillment centers (and which of those also have sales tax laws), check out this map on TaxJar’s blog.
How Can TaxJar Help with these Issues?
TaxJar (www.TaxJar.com) is online software that makes the task of tracking your sales and filing sales tax in various states FAR EASIER.
It connects to all your different sales and payment platforms (Amazon, Walmart, eBay, Shopify, Stripe, Paypal, etc.) and gathers all your sales data from each platform.
TaxJar then shows you in what states you made what sales. If you sell on Amazon using FBA, it also shows you in which states your inventory is stored.
TaxJar plans start at $19/month for gathering and reporting this information. (They also have a free trial that will show you your sales in each state over the previous two months.)
Additionally, TaxJar has an autofile feature that you can use to automatically file your monthly, quarterly, or annual sales tax returns in all the different states where you have registered for sales tax. Autofile costs $16-$25 per filing, depending on which monthly TaxJar plan you have.
Special Offer from TaxJar
TaxJar has generously made a special offer to listeners of the eCom Leverage podcast. Use the code ECOMLEVERAGE when signing up to get 10% off an annual plan with TaxJar.
(We are not affiliates of TaxJar and receive no compensation if you sign up. But we think they provide an excellent service to e-commerce sellers, and we highly recommend you check them out!)
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