We know a small business should pay sales tax in their state, but what about resellers that go across state borders? Especially with Amazon FBA…. how does state sales tax work then??

State Sales Tax with Amazon FBA

 

45 out of 50 states in the US have a state sales tax on goods.  Tracy uses the example of her living in Florida selling items.  If she sells something to someone else in Florida then she needs to collect sales tax from that person.  The customer pays the tax, you collect it, then you pay it to the state.

If you sell something to someone else in another state then you don’t need to collect sales tax, if shipping from your home state.

When dealing with Amazon FBA, having your inventory at the Amazon warehouses in other states then it becomes what’s called “NEXUS”: Which is when a business has significant or substantial business in another state to comply with sales tax in that state.

If you have a lot of your inventory at an Amazon warehouse in another state and you have sales in that state then you technically need to collect sales tax for that state and send to them.  The rule is vague, it doesn’t say if you have a specific amount of sales or inventory in a state then you need to collect sales tax.

Keywords for NEXUS is “Significant or substantial”.  It’s open to interpretation of what significant or substantial business presence means.  If one Amazon seller has $1000 worth of inventory at one warehouse, might be considered substantial to that seller but wouldn’t be substantial or significant if another seller has $30,000 worth of inventory in the same warehouse.  It takes a tax attorney or CPA to interpret the tax law.

Tracy talks about a case Quil VS. State of North Dakota.  The supreme court ruled in Quil’s favor who is  reseller of office supplies.  You can Google the case if you want to read the details of it.

1^st option or argument is Amazon has warehouses in 14 different states.  If you send inventory to Amazon then it becomes under the control of Amazon and Amazon sometimes ships your inventory to other warehouses in other states, out of your control.  So it could be argued that you only need to collect sales tax for your state.

2^nd option you have if you decide you have significant business presence in a certain state (other than your home state) is to start collecting sales tax for that state.  If you notice when sending your Amazon FBA inventory to just a couple warehouses in other states on a regular basis then that could be interpreted as you having NEXUS in those state you are sending your inventory to.  If you notice that you send to one warehouse once in 5 years then that might not be considered significant business presence in that state.

3^rd option is to pay state sales tax in all states that have Amazon warehouses.  If you decide to be full fledge compliant in the NEXUS rule.  This is the safest avenue to take but will take a lot of time and money to setup all the sales tax accounts in all the states.

4^th Option you have is to not worry about any sales tax, just stick your head in the sand and pretend it doesn’t exist.   This is definitely the most risky option to take on and is not recommended.  If you are an online seller of goods then you need to take the business serious and run it like a real business.  This whole sales tax subject has learning curve to it so it’s a matter of tackling it, facing it head on and get it taken care of and in the future it won’t be such a problem.

Tracy explains how to run an inventory report to see where your inventory is located so it gives you an idea of what to do and what other states if needed to start collecting sales tax.

TaxJar.com is a service that keeps track of the transactions online of where your sales are and when set up you will know exactly how much sales tax you collected for each state and then will know how much you will need to send to each state.  Tax Jar offers different services available, you can have them help you setup the accounts for each state, you can have them send and file the state sales tax for each state for you which saves you time and stress.

Entrepreneur Girl Tracy plans on being “significant” with Amazon FBA so she will have the state sales tax accounts for the 12 states that the Amazon warehouses are located (that collect sales tax) including her home state of Florida.  If you are a small part time Amazon seller without “significant sales” then the NEXUS rule may not apply, however you should always consult with your accountant or tax attorney for advice of what to do and how to do it to be compliant with the laws.