January is the perfect time to set your annual business goals and to dream big FBA dreams!
…It’s also the perfect time to give your business an annual review. And one thing you should definitely review every year is your sales tax compliance. We get that giving yourself a little sales tax checkup isn’t the most exciting chore you’ll do all year (or even today), but reviewing your business’s sales tax activities can save you time, money and headache.
Let’s get started!
1. Double Check your Sales Tax Nexus & Materiality
In a nutshell, if you have sales tax nexus in a state, then you are required by that state’s law to collect sales tax from buyers in that state. If you do not have sales tax nexus in a state, then you are not required to collect sales tax from buyers in that state.
When selling on FBA, Amazon moves your inventory around to various warehouses. In all states with Amazon fulfillment centers except Virginia, storing goods in a warehouse is considered sales tax nexus. As an Amazon seller, you may have inventory stored in 12 or more states. But should you register to collect sales tax in 12 states? That’s where the concept of materiality comes in. Though you may technically have nexus in a state, it’s up to you to determine if you have enough business activity in that state to justify registering for a sales tax permit. “Materiality” can be a tricky concept, so read all about “When to Register for a Sales Tax Permit” here.
To determine where Amazon is storing your inventory, you can check your Inventory Event Detail report in Seller Central or use a 3rd party service to show you from which states your Amazon inventory is shopping.
2. Update Your Sales Tax Permits
If you find that you have nexus and materiality in a new state, your next step is to register for a sales tax permit in that state. Be sure to do this before you begin collecting sales tax from buyers in that state because states consider it illegal to collect from a buyer without a sales tax permit!
You may also find that you no longer have sales tax nexus in a state. For example, say you had a remote employee in Iowa but that person is no longer with your company. This means that you may no longer have nexus in Iowa. If that’s the case, you can cancel your Iowa sales tax permit. This is usually as easy as marking “final filing” on your last sales tax return, though it’s always a good idea to double check with the state’s department of revenue to determine all loose ends are tied up when you’re closing your sales tax account.
3. Note Your Sales Tax Filing Frequencies & Due Dates
One of the trickiest things about sales tax is that each state is slightly different. States set their own sales tax filing due dates. While a majority of states want sellers to file by the 20th of the month after the filing period (either monthly, quarterly or annually) other states want to hear from you by the 15th, 25th, or last day of the month. Every state is slightly different. Be sure you know when your sales tax returns are due this year.
January is also the time when states sometimes change your filing frequency. How often you file is based on your sales volume in a state, so if your volume has changed, keep an eye out for a letter in your mailbox from your state’s department of revenue. They may want you to file more or less often.
4. Ensure You’re Collecting Sales Tax Correctly
January is also a great time to ensure that you’re still collecting the right amount of sales tax from the right customers.
Be sure you’re collecting sales tax from all of your customers on all of your sales channels.
You live in New Jersey, but also have sales tax nexus in Nevada due to the fact that you have inventory stored in an Amazon fulfillment center there. You also sell on Shopify. Be sure that you are collecting sales tax from buyers in both New Jersey and Nevada on both your Amazon FBA and Shopify shopping carts.
Also, if you are charging any custom sales tax rates, January is the time to double check them. States often change sales tax rates in January and July. Fortunately, most online shopping carts these days are robust enough that you can trust them to collect the correct amount of sales tax for you. Though, if you’re unsure whether or not you’re collecting the right amount of sales tax, automated tools like your “Actual vs. Expected Sales Tax Due Reports” can help you figure out where the problem lies.
And with that, you’ve given yourself a sales tax checkup for 2017. Do you have questions about sales tax? Check out our Sales Tax for Amazon FBA Sellers guide or start the conversation over in the Sales Tax for eCommerce Sellers Facebook group!
Mark Faggiano is the Founder and CEO of TaxJar, a service that makes sales tax reporting and filing simple for more than 5,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!