- Mark Faggiano
- On January 5, 2016
- 0 Comments
- resource webinar
As much of a drudge as it may be, sales tax is a necessary part of life for U.S. product sellers, and FBA sellers have an even more complex sales tax scenario. In this post we’ll go over what FBA sellers need to know about sales tax and how to finally put a lid on this troublesome chore.
Watch the recording of the Sales Tax Boot Camp for FBA Sellers Webinar below!
What’s the Deal with FBA and Sales Tax?
It all started with the Supreme Court. In the 1992 case Quill vs. South Dakota, the court ruled that merchants have to charge sales tax to buyers in a state when they have sales tax nexus in a state.
Sales tax nexus is just a fancy way of saying “significant presence” in a state. And one thing that creates sales tax nexus in nearly every state is storing inventory there. For FBA sellers, this means that you may have sales tax nexus in every state where Amazon has a fulfillment center, depending on whether or not your inventory is stored there.
And you may also have nexus because your business has other nexus-creating activities, like:
- It’s your home state – you’ll always have home state nexus
- A location – a store, office, warehouse, factory or other location creates nexus
- An employee – employees, many contractors, sales people, installers and others create nexus
- A drop shipping relationship – depending on your negotiations with your drop shipper, you may have nexus if you drop ship
- An affiliate – some states consider 3rd party affiliates who send customers to your store to create nexus
- Temporary business activity – In some states, if you sell within their borders for just a handful of days (such as at a tradeshow or craft fair) then you have nexus there
You can find out where Amazon FBA gives you nexus by following the steps detailed in this post.
If you find that you have sales tax nexus in a state, your next step is to register for a sales tax permit in that state.
How to Register for a Sales Tax Permit
It’s important to register for your sales tax permit or license. If you are registering in a state that isn’t your home state, this will often be called a “use tax license” rather than a sales tax license.
Don’t skip this step! Many states consider it unlawful to collect sales tax without a permit.
When you receive your sales tax permit you’ll also receive your filing frequency. This is how often the state wants you to file a sales tax return and remit the sales tax you’ve collected back to them. Most of the time you’ll file a sales tax return either monthly, quarterly or annually.
Collect Sales Tax from Your Customers
Once you’ve discovered where you have nexus and you have your sales tax (or use tax) permits safely in hand, your next step is to set up sales tax collection in that state.
Also keep in mind that once you have sales tax nexus in a state, you should collect sales tax from buyers in that state on all of the channels you sell on. Example: if you have nexus in 10 states and also sell on your own store through Shopify, you’d need to set up Shopify to collect sales tax from buyers in those 10 states.
Report How Much Sales Tax You’ve Collected
Remember back when you registered for your sales tax permit and the state told you when they want you to file? Well, the time to file has arrived! But before you can fill out your sales tax forms and remit any sales tax you’ve owed, you need to figure out how much sales tax you’ve collected.
The states don’t make this easy. Most states want you to tell them how much sales tax you collected not just in the state, but also from each county, city and special taxing district. Before sales tax automation solutions came along, this involved pulling a report from every channel you sell on, trying to figure out which city and county (and other special taxing district) your buyers lived in, and trying to compile it all in an enormous spreadsheet. Our customers told us this took an average of 5 hours – and that was for the easy states.
File a Sales Tax Return
Once your due date approaches and you’ve reported all of the sales tax you’ve collected on every channel.
Now it’s time to file your sales tax return. You can find your state in the TaxJar app for instructions on filing online. Just use your TaxJar state reports to fill out your sales tax returns, remit payment to the state, and you’re all done.
And that’s it! Once you’ve filed and paid your sales tax you’re done – until the next deadline rolls around. Have questions? Start the conversation in the comments!
And for even more information about sales tax, download the Sales Tax Boot Camp Ebook.
Get the Sales Tax Boot Camp Ebook