SL-Blog-SalesTaxNexus

Make Informed Sales Tax Nexus Decisions With Data

Sales Tax compliance is a hot issue lately. The issues are complicated and many people have strong opinions on both sides of the issue of whether Each Seller or Amazon should be responsible the responsible party for collecting and remitting sales tax.

I’ve been working with Amazon Seller data for many years and have a pretty deep understanding of what data is available. It makes me a little crazy when sellers decide to start collecting sales tax in a state where they don’t even know if they have inventory. That adds an administrative burden to file taxes for the state, usually each quarter or month, to a seller’s already limited amount of time.

Two main data points to help sellers make data-driven decisions

1. How much inventory do you have in a state?

It’s unclear how exactly each state is going to evaluate whether you have nexus within the state. A state could decide to base some threshold based on number of units, retail or wholesale value, or even something like cubic volume. A seller with hundreds or thousands of units in a state for months is more likely to be considered as having a nexus than a seller with only a couple of units in the state for a few days.

2. How much revenue did you do within the state?

Sales tax is tied to the revenue you collected in the state. A seller with $200,000 in sales to a state has a higher potential tax liability than a seller with only $1,000 in sales to the same state. If a seller estimates their total potential sales tax liability is only a few dollars, they may decide that it is not worth the administrative burden and additional cost to start collecting and remitting tax to that state.

A new FBA inventory location reporting tool

I made a tool to help sellers understand those two important pieces of information. After logging in and connecting your account, it allows you to select a state and date range. It then takes a few minutes to collect all of the necessary information and then gives you a report like the one pictured below. You can see how much inventory you have had in Fulfillment Centers in the state, broken down by month. You can also see your sales revenue to buyers in the state, also broken down by month.

In the example below, you can see that the seller didn’t have any inventory in the state of Massachusetts until November 2016. They had up to 73 units and just over $10,000 retail worth of inventory there in July 2017. Sales to buyers in the state were around $3,000-$6,000 per month except in each December when it rose to around $14,000.

ScreenShot of Saller Labs Inventory Location tool

Screenshot of Seller Labs Inventory Location tool

Now that you have some actual data, you should be better equipped to make decisions on whether you want to start collecting sales tax in a state or not.

Brandon Checketts

Brandon is one of the co-founders and main data geek for Seller Labs. He started Seller Labs after finding no other tools that could provide the flexibility needed for his used-book business. He no longer sells online, but now guides Seller Labs as the lead innovator to make sure that our products remain on the cutting edge.

This Post Has 2 Comments
  1. Good info, but once you have registered in a state, you have to file a return in any case and also file income taxes in that state for local sales even if they are zero. Since FBA sellers have no control over where Amazon decides to keep their inventory, what can you use this tool for?

    1. Hi, Saud, thanks for your question. This tool is a way of gathering info so you can choose how to proceed. Basically, this tool shows you where your inventory is being stored so you can see if you you have tax obligations and liability for that state. For example, if all of your inventory is being held by Amazon in a fulfillment center that does not require sales-tax to be collected and reported by sellers, you might not pursue registering or filing in that state. But if you have lots of inventory in a state like Massachusetts, your next steps might be different. This tool is to show you where your inventory lives. It’s not a replacement for any sort of tax advice or software. It’s a freebie to help you start making sense of a fragmented situation. As always, we recommend starting with the fine folks at https://blog.taxjar.com/ Good luck!

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