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. Unlike in the E.U., where VAT is included in the final sales price, sales tax is added to the sale. If you sell products like supplements, the supplements may be taxed in some states, not others, depending on the ingredients. Digital courses and products, in many cases, are also subject to sales tax.
• Which states do you have nexus? Nexus means a presence. There are 45 U.S. 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) are responsible for collecting and remitting sales tax on sales to residents in that state. There are several types of nexus.
• Economic Nexus. Economic nexus was developed due to the 2018 U.S. Supreme Court Case, Wayfair vs. South Dakota. The states developed thresholds of sales and/or transactions, and if you pass those thresholds (the 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. 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 19 states with only 200 transactions that create economic nexus.
• Physical Nexus. A warehouse fulfillment center that ships your products to your customers creates physical nexus; employees and an office in a state are other examples. If you sell through Amazon FBA and also on your own website or through Shopify, your stock in the Amazon FBA warehouses creates physical nexus in multiple states and a responsibility to register for sales tax to collect and remit sales tax on your Shopify sales or from your own website. It is not only when you cross economic nexus thresholds if you first had physical nexus in a state.
• 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 some states, you may need to register and file sales tax returns (even if zero tax is owed on your part).
• Amazon is collecting and remitting in 47 states. See this link for updates. This number will increase over time. If you are operating as a sole proprietorship, you may want to strongly consider forming a separate legal entity before you register in all the states where you have a sales tax nexus. Establishing an entity first will save you a lot of time and money when you must 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? During our consulting process, we can recommend the best software or resources to get you registered and in compliance with sales tax.
• Protect Your Business Exit Value: Understanding Sales Tax Implications. Due Diligence Pitfalls: During the due diligence phase of a business sale, buyers will scrutinize your sales tax compliance history. Any discrepancies or liabilities can lead to renegotiations or even cancellation of the sale. Example: During due diligence, a buyer discovers unpaid sales tax liabilities in several states. This can lead to a reduced purchase price or demands that the seller cover these liabilities, thus reducing the net proceeds from the sale. Impact on Valuation: Sales tax liabilities can significantly impact your business’s valuation. Unaddressed sales tax issues can be seen as financial risks, leading to lower valuation multiples. Example: A business initially valued at $5 million may see its value reduced by $500,000 or more if significant sales tax liabilities are uncovered. This reduction directly impacts the exit price, diminishing the seller’s returns.For personalized recommendations and to discuss how we can safeguard your business’s exit value, we recommend booking a consultation at the link below. We will explore the best resources and strategies for sales tax compliance tailored to your needs.