DO YOU NEED TO GET REGISTERED FOR SALES OR USE TAX?
Here is what you need to know before you get started with your sales tax permit registrations:
- Do you sell a product subject to sales tax in the U.S.? The odds are yes; 97% of all products sold are subject to sales tax. Sales tax is added to the sale, unlike in the EU, where VAT is included in the final sales price. If you sell products like supplements, the supplements may be taxes in some states and not in others, depending upon the ingredients.
- Which states do you have nexus? Nexus means a presence. There are 45 US states with sales tax, plus the District of Columbia (D.C.). As a seller, if you have nexus in a state, you or your marketplace facilitator (like Amazon) have a responsibility to collect and remit sales tax on sales to residents in that state. There are several types of nexus; the most common are the following:
- Physical Nexus (FBA stock). 30 states have FBA warehouses where your inventory is shipped to a customer. Suppose you have stock/inventory in one of these 30 states, which creates physical nexus. Once you have physical nexus, you are responsible for collecting and remitting sales tax on customers’ sales in those states. The great news, as a new seller, Amazon is likely ALREADY collecting sales tax for you in those states, so you may only need to register for a sales tax permit/license and file a zero or information sales tax return. But if you had physical nexus prior to marketplace nexus, you would have exposure in that state.
- Economic Nexus. Economic nexus was developed due to the 2018 US Supreme Court Case, Wayfair vs. South Dakota. Basically, the states developed thresholds of sales and or transactions and, if you pass those thresholds (most common is $100K in sales or 200 transactions), you need to collect and remit sales tax for all new sales in that state after that point. Again, Amazon may already be collecting in those states, so all you need to do is register (in most cases) and file zero or information returns. There are currently 44 economic states. If you sell on a non-marketplace facilitator platform such as your website or Shopify, you will be responsible for tracking your sales cross economic thresholds. There are 26 states with only 200 transactions that create economic nexus.
- Marketplace Nexus. Marketplace nexus is where the marketplace facilitator (Amazon, eBay, Walmart) that offers a platform for third-party sellers, like yourself, is responsible for collecting and remitting sales tax once the marketplace facilitator passes a threshold. This is excellent news for you as an Amazon seller. This means Amazon will collect and remit on your behalf; but, in most states, you still need to register and file sales tax returns (even if zero tax is owed on your part). There are currently 45 marketplace nexus states, and Amazon is collecting and remitting on your behalf in 43 of them.
- Amazon is collecting and remitting in 43 states. See this link for updates. This number will increase over time. There are 3 FBA states currently where you may have stock, and Amazon is not collecting. These include Florida, Kansas, and Tennessee.Our Complete 8-step sales tax permit registration process through our sister brand, Sales Tax System, is the most complete in the industry. Top e-commerce and accounting firms use our registration services for their clients. If you are operating as a sole proprietorship, you may want to strongly consider forming your separate legal entity before you get registered in all the states you have sales tax nexus. Establishing an entity first will save you a lot of time and money later, having to re-register for sales tax.
- Not sure when you first had nexus and which states to register? This requires a sales tax nexus analysis to determine which state and most of your first had nexus and had sales in that state. You will also want to determine which states to register, your past liability, which states to close out any registrations, the number of past sales tax returns to file, and the best approach to get them filed. Does this process sound complicated? It is, and our sister brand, SalesTaxSystem.com, can complete this process for you. Learn more at this link.