Tag: state tax

What You Need To Know About Amazon Sales Tax Compliance in 2018

Amazon’s move from garage-based book seller to massively successful global ecommerce giant has inspired countless entrepreneurs to sell products through the Amazon marketplace. With a good product, tireless work ethic, and a dose of luck, you could be the next Amazon seller success story. But getting Amazon sales tax wrong can undermine such success. Here’s what you need to know about sales tax compliance to start off on the right foot.  

The changeable nature of sales tax

Sales tax, rates, rules, and product taxability change frequently at the state, and in some cases local, level. Though tax authorities do their best to disseminate information to taxpayers, the burden of keeping informed and complying with new rates and regulations falls squarely on the shoulders of the seller. If you make a mistake, even due to ignorance, you’ll likely pay the price.

A need for revenue

Due to a 1992 Supreme Court’s ruling, Quill Corp. v. North Dakota, a state cannot oblige a business to collect and remit sales tax unless it has a substantial physical connection to the state, or nexus. Consequently, although consumers are buying more online, state and local sales tax revenue is not seeing a corresponding increase. According to a report by the U.S. Government Accountability Office (GAO), states lost approximately $13 billion in 2017 to untaxed remote sales.

In response, states are aggressively redefining nexus to include ties to in-state affiliates, economic activity, warehouse inventory, web cookies, and more. Many of these laws impact Amazon sellers. Since Amazon now collects sales tax on its own products in all states with a sales tax, states stand to gain the most — approximately $6 billion in 2017 — by taxing its marketplace sales.

States eye marketplace sellers

Different states are taking different tactics to acquire that revenue. For example, Massachusetts is trying to get Amazon to identify its marketplace sellers, while South Carolina is suing Amazon for uncollected tax on its marketplace sales. Virginia law now holds that storing goods in an in-state warehouse is enough of a connection to mandate tax collection, so you better know where your inventory is stored. And as of Jan. 1., 2018, Washington is requiring Amazon to collect and remit tax on its marketplace sales.

While some states are being sued over their efforts to tax remote sales, they’re undeterred. In fact, South Dakota created an economic nexus law with the express purpose of challenging Quill’s physical presence standard. It’s on the steps of the Supreme Court now, and if the court takes the case, it could overturn Quill and grant states the right to tax remote sales.

Getting Amazon Sales Tax Right

Given the current climate, it’s essential for all Amazon sellers to track state efforts to tax marketplace sales. Equally important is the need to understand the risks of not collecting tax. The more aggressively states pursue tax revenue from third-party sellers, the more you can expect to spend on audits and assessment-related costs. According to the GAO report, small and medium-sized businesses could be audited “should states gain the authority to tax remote sales.”

Avalara automates the complexities of collecting and remitting Amazon sales tax, so compliance doesn’t have to be a nightmare. Click here to learn more about how Avalara works with Amazon sellers.

2018 Sales Tax Rate Changes Sellers Should Know About – Guest Post by Avalara

Change is a constant with sales tax. Thousands of sales tax changes occur annually, affecting rates, rules, and regulations: Exemptions expire and are imposed on new products; rates increase and decrease; jurisdictions expand, contract, or even cease to exist; and so forth. Such changes affect any retailer making sales in the affected jurisdiction. But many of the changes coming in 2018 target online sellers in general, and specifically Amazon’s marketplace vendors.

States target online marketplace sellers

Online marketplace sales topped $1 trillion in 2016, according to an Internet Retailer research report. Yet state sales tax revenue isn’t sharing the meteoric rise of the internet marketplace. In fact, the U.S. Government Accountability Office reports that states missed out on up to $13 billion in tax revenue from untaxed remote sales in 2017 alone, roughly $6 billion of which was from online marketplace sales.

Therefore, states are redoubling their efforts to let no online sale go untaxed. Now that Amazon is collecting tax on sales of its own products in all states that have a sales tax, states are targeting marketplace sellers that, until recently, largely escaped the attention of state tax authorities.

New remote seller requirements took effect in Maine and Rhode Island in late 2017. Washington state is taxing marketplace sales as of Jan. 1, 2018. Under a new law in Pennsylvania, referrers, remote sellers, and marketplace facilitators must collect tax on their sales by March 1 of this year. A similar law in Minnesota, the first to be enacted, is scheduled to take effect on July 1, 2019.

Yet these aren’t the only laws targeting non-collecting remote sellers. In Virginia, out-of-state vendors that store property in an in-state warehouse or shipping facility, even one owned by another party, are considered to have a physical presence in the state and an obligation to collect and remit tax on their Virginia sales. And as of Dec. 1, 2017, certain remote vendors who “purposefully or systematically exploit the Mississippi market” are considered liable for tax on their sales in Mississippi.

Furthermore, a handful of states may have found an effective way to work around the physical presence precedent that has long prevented states from taxing remote retailers. Connecticut, Massachusetts, Ohio, and Rhode Island now maintain that the presence of software or web cookies on an in-state device establishes a physical presence and an obligation to collect and remit tax. Legal action is pending over at least two of these policies; if the states emerge victorious, others may follow their lead.

All’s fair in love and sales tax

That’s what’s happened with Colorado’s use tax notification and reporting requirement, which the Supreme Court of the United States let stand. Vermont, Washington, and several other states have enacted similarly onerous reporting requirements on non-collecting retailers.

The full impact of these requirements has yet to hit. In the coming months, residents of states with use tax reporting laws will start receiving reports of their purchase activity from non-collecting vendors. They’ll be informed that the vendors are required to send similar information to the state tax authorities. How would you react to such news? Would you rather pay tax at checkout, or have your personal information turned over to the state?

The trend is clear: States will not stop until they can collect tax revenue from most, if not all, remote sellers. If that happens, retailers that don’t currently collect will need to deal with rate changes, new and expiring exemptions, and other state and local sales tax changes.

See more 2018 sales tax changes at the Avalara blog.

 

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