As an Amazon seller you are required to register to collect and remit sales tax in the states where you have physical stock or economic nexus.
There are two major types of sales tax nexus – physical and economic nexus – and you need to know both sets of rules.
Physical Nexus: Amazon FBA sellers have sales tax nexus created as their stock moves from state to state (one exception is New York).
Economic Nexus: This refers to a threshold of sales or transactions in each state (regardless of any physical nexus). Once you pass a state’s threshold, you have nexus.
The June 2018 U.S. Supreme Court Case, Wayfair vs South Dakota, it was determined that South Dakota could require Wayfair to collect and remit sales tax on sales to residents in their state. This was due to South Dakota’s “economic nexus thresholds of sales ($100K) or transactions (200)”, even though no physical nexus was present.
To date, there are 35 states with economic nexus rules in place. Here are a few examples:
- California -effective date 4-1-19, economic nexus levels of $100K in sales or 200 transactions.
- Colorado – effective date 12-1-18, economic nexus levels of $100K in sales or 200 transactions.
- Pennsylvania -effective date 7-1-19, economic nexus levels of $100K in sales or 200 transactions.
- Washington- effective date 10-1-18, economic nexus levels of $100K in sales or 200 transactions.
Other Types of Sales Tax Nexus
One is called, “marketplace facilitators” (MF), where 11 states currently have rules in place. The states have determined if the MF (Amazon, eBay, Walmart…) passes the economic nexus rules for the MF, that the MF now must collect and remit sales tax for ALL MF sellers in that state from that date forward.
This is where Amazon (an MF), will collect and remit sales tax on your sales! But you still need to register for a sales tax permit and file sales tax returns in these states.
The second category is what is call “notice and reporting.” The states give you an option, either collect and remit sales tax on all the sales to customer in the state OR send each customer and the state a notice (by mail). If you miss the mailed notices to each customer and the state, you may suffer fines up to $20K!
Sellers have concluded it will be much easier to register to collect and remit sales tax in these “notice and reporting” states.
What is my Sales Tax Registration Date?
It is the date you first had nexus. This involves reviewing four possible nexus dates.
- FBA stock or another type of physical nexus (another warehouse, state of entity formation)
- Economic Thresholds (sales or units)
- Marketplace Facilitator. It is possible that you had FBA stock in a state like Washington BEFORE it become an MF by 1-1-18. This means you would need to register when you first had stock, pay the back sales tax, and file returns up until the 1-1-18 date; and after, you only have to file returns, as Amazon will collect and remit for you.
- Notice and Reporting Thresholds. These thresholds only consider sales in most cases.
You will need access to the nexus thresholds and dates in all four categories before you will know when you first had nexus.
What are the Steps to Get in Compliance with Sales Tax?
- Determine if your product is subject to sales tax.
If you are selling supplements, certain foods, beverages or clothing, your products may not be subject to sales tax in some states. Most all other products will be subject to sales tax and you may move to step 2.
- Determine when you first had nexus in each state. This involves being able to pull your sales on a monthly basis to determine when you first cross an economic nexus (sales or transactions) notice and reporting threshold, or if it’s a marketplace facilitator state, and compare that against when you first had FBA stock in the state. If you are not selling via FBA, then just consider the first part to determine when you first had economic nexus.
- Determine how much you may owe in past sales tax due. The easy calculation is 10% of your sales subject to sales tax, since you first had nexus in the state.
- Register for sales tax permits (get registered). Some states, you will register for a use tax as an out-of-state seller, others for a sales tax permit as an in-state seller. There are various steps to create a tax account, register for the permit, and connect the tax account to get ready to file sales tax returns. Once you have that permit number, you will turn on your Amazon Seller Central Tax settings, to start collecting sales tax on future sales.
- Remit sales tax. This is a process to file a sales tax return, usually on a monthly, quarterly, or annual basis, and remit (or give back) the sales tax to the state. The exception is the marketplace facilitator states, where the state is collecting and remitting sales tax for your sales. The good news is there are tax software programs that automate this process for sellers (the last step in the process).
Other factors or services to consider when getting into compliance with sales tax.
- A virtual address and scanning service. On average, you will receive up to 5 pieces of mail PER month, PER State, for the first 3-4 months.
- Foreign Registration/Qualification. A few states require an entity to foreign qualify or register before or after you apply for a sales tax permit.
- U.S. Bank Account. Applies to foreign sellers who do not have a U.S. bank account for an ACH pull to automatically filing sales tax returns.
In the end, if you are growing a strong Amazon brand for the long term, sales tax compliance is a must for any seller’s financial survival, and prosperity.
Need support with any of the steps or requirements outlined in this post? Reach out to Sales Tax System at [email protected] and let us know you are part of Andy’s SEO blog, and you will receive extra special bonuses for support.