Amazon Sales Tax Requirements for Third-Party Sellers in 2021
You may have read the online comments from around the world of the relief that Amazon.com is finally collecting and remitting sales tax on behalf of third-party sellers in over 47 marketplace nexus states (which includes D.C. and Alaska, which has no state sales tax but at the local level). Missouri will be added to that list by January of 2022.
There was a massive sigh of relief from sellers; finally, we don’t have to collect and remit sales tax.
What does this mean for a seller who has been selling on Amazon.com for two years or more?
Sellers who only sell on Amazon will not need to collect and remit sales tax in each state when the marketplace facilitator (Amazon) passes the marketplace facilitator nexus threshold. If the seller is NOT compliant with sales tax in the states where they currently have nexus and Amazon takes over the sales tax collecting and remitting responsibilities, the seller will stop losing the 10% on every sale in that state. This means the financial bleeding will finally end, BUT this does NOT erase the previous sales tax due, along with penalties, interest, and late fees on any past returns.
The CONFUSION is that many sellers and tax professionals incorrectly assumed that the U.S. Supreme Court Case, Wayfair vs. South Dakota, REPLACED Physical nexus laws with economic nexus laws, and that is NOT the case.
The Wayfair vs. South Dakota case created a pathway for ECONOMIC nexus, which is in ADDITION to the existing PHYSICAL nexus laws. This means even if Amazon is now collecting and remitting because of Marketplace Nexus (they passed a threshold), if you had FBA stock in one of the 30 FBA states PRIOR, that means you have exposure before Amazon taking over the responsibilities in the state.
A typical example is that on January 1st, 2020, Amazon will collect and remit for all the sales in Hawaii and Illinois. This, again, is excellent news moving forward from January 1st for those not in compliance, but if you had FBA stock prior or passed these states’ economic nexus thresholds of $100K in sale or 200 transactions, your business has a sales tax liability in the state.
If you had stock AFTER marketplace nexus, most states would take the position you only need to track the economic nexus thresholds moving forward. Still, some states do count the marketplace sales on Amazon in addition to your non-marketplace sales.
We realize that most sellers who are NOT in compliance in the states where they had physical presence are HOPING that since most states require Amazon (and other marketplace facilitators) to collect and remit sales tax, that the states will “forget about” or “not pursue” past sales tax due as a result of previous physical nexus established by the seller in the state.
This is not the case with one of the newer marketplace nexus states. Florida will be aggressive in its efforts to go after sellers who had FBA stock in their state and did not register, collect and remit. October 1st, 2021, is the deadline to register for complete amnesty in Florida. If you don’t get registered before October 1, 2021, expect to receive a phone call or letter in the mail in the future about your compliance requirements.
There are still discussions about who is the “retailer,” which is a basis that several states, including California, use as a benchmark to determine who has nexus. Is Amazon the retailer, or are you, the third-party seller, the retailer? Even though several states are starting to take the position that Amazon is the “retailer,” states like California have their viewpoint.
The states go to their events to use new technology to find more efficient ways to find sellers who owe past sales tax, then send out a letter or two with late notices as a low-cost method, which usually results in additional revenue.
Sales tax registration is still required in some states, even if Amazon is collecting and remitting. Washington is such a state. Other states want you to register once you cross the economic thresholds only through your marketplace sales, including Connecticut, Minnesota, and Texas, to name a few. This may change over time as states have evaluated their policies.
FBA sellers will still need to track when they first had stock (physical nexus), plus when they pass the economic nexus thresholds in other states, to help determine when they first had nexus. This creates the starting point on your sales tax application (from a conservative point of view). Most states now don’t care about when you first had nexus if the marketplace facilitator collected and remitted and will have you look to when you cross economic nexus thresholds on non-marketplace sales.
Bonus Point: Selling on Shopify or your website (or any NON-marketplace facilitator website) will create a need to collect sales tax and remit on those sales, assuming you have passed either physical or economic nexus.
If you are primarily an Amazon FBA seller and dabble in Shopify, that will create more sales tax compliance work. This is especially difficult for foreign sellers because they will need a U.S. bank account to do an ACH to remit sales tax back to the state.