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. Sales tax is added to the sale, unlike in the E.U., where VAT is included in the final sales price. 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 21 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. Our Complete 5-step sales tax permit registration process through our sister brand, Sales Tax System, is the most complete industry. Top e-commerce and accounting firms use our registration services for their clients. If you are operating as a sole proprietorship, you may want to strongly consider forming your separate legal entity before you get registered in all the states you have sales tax nexus. Establishing an entity first will save you a lot of time and money later, having to 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? It is, and our sister brand, SalesTaxSystem.com, can complete this process for you. Learn more at this link.