Amazon Sales Tax Requirements for Third-Party Sellers in 2020
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 44 marketplace nexus states (which includes D.C. and Alaska which has no state sales tax but at the local level). This number will soon to be 45, Tenessee (by October 1st) have enacted marketplace nexus legislation.
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?
Amazon, as a Marketplace Facilitator, Creates Several Key Results for These Sellers Amazon Sales Tax Responsibilities for 3rd Party Sellers.
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 start to 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.
There are Three States where Amazon is Not Currently Collecting and Remitting Sales Tax that is also FBA States
The four states include Florida, Kansas, Missouri, and Tennessee (will change October 1st) as of July 2020. We expect this to change in 2020. These become four key states an Amazon FBA seller will need to collect and remit sales tax after they have stock in the state. The good news is this period may be only a year or so before Amazon collects and remits on your behalf.
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.
It is possible, as a budget matter, some states may decide not to add resources to go after past sellers and be content with collecting all the sales tax moving forward from Amazon and other marketplace facilitators (but don’t count on it).
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.
The third-party Amazon seller is still liable for past sales tax in a state if they had prior nexus. If the seller had either physical nexus (FBA stock) or passed the state’s economic nexus threshold BEFORE the marketplace facilitator had nexus (Amazon), there is a sales tax liability for the third-party seller.
Sales tax registration is still required in most states, even if Amazon is collecting and remitting. Your sales tax nexus date is determined by when you first had nexus, either physical (stock) or economic nexus (sales and transactions). A new seller may find that even though Amazon is collecting and remitting on their behalf in most states, they will not need to register until they have nexus in most states.
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).
Do some sellers assume, “If Amazon is collecting and remitting, and I am not selling on any other NON-marketplace facilitator platforms (Shopify, for example), why register at all or any time soon because there is no sales tax penalty on sales tax I am not collecting?”
This does make sense, but keep in mind that some states still have late fees on returns that are not filed on time, even though there may not be any amount due. Yes, some states do allow you to close your tax account (saves money/no remitting), if the marketplace facilitator is collecting and remitting, and you are caught up with past sales tax. Minnesota is an example.
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 you dabble in Shopify, that will create a lot 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.