Why Your CPA Maybe Wrong about Your Sales Tax Responsibility as an Amazon FBA Seller
Update: Since the June 21st, 2018 U.S. Supreme Court Decision, South Dakota vs. Wayfair, your CPA may be scrambling to figure out how many states you may have to collect and remit sales tax with the traditional nexus (FBA stock), economic levels (sales and units) and the reporting states. No longer is your CPA able to say, “you only have to collect and remit in your home state…”
As a third-party seller on Amazon.com, you are required to manage your own sales tax requirements. If you are using FBA (fulfilled by Amazon) to manage your stock and inventory along with shipping, each time your stock arrives in another state with FBA, that creates nexus. Nexus means a physical connection to the state. Using a third-party warehouse creates a connection.
Update: Marketplace nexus is in 44 states, and Amazon now collects in 43 states, but registration is still required in 7 states, two when you cross economic nexus.
The result is you, as an Amazon FBA seller, you need to collect and remit sales tax for the sales to customers in the FBA states (after you have stock, which means you created nexus).
Amazon does help you along by making it easy for you to update your Amazon Seller Central Account tax settings.
You first must determine in which FBA states your stock is located. SalesTaxSystem.com has three options for helping you with that step. Your next step is to apply for sales tax permits (or a license) to collect and remit sales tax. Once you have this license, you are now legal to collect sales tax. You go to your Amazon Seller Central Account and update the tax settings in the states you have a sales tax permit. Once you start collecting sales tax, several remitting companies can help you automate the back end process and remit sales tax. Even your CPA will be happy they don’t have to remit sales tax in 20 states or more!
Why may your CPA still be confused? They may be used to local retail clients who have nexus or a physical presence in their state and are used to collecting and remitting sales tax for those in-state sales. They may have read the headlines that say, “Amazon is not required to collect and remit sales tax in the other 45 states,” but don’t realize that only applies to Amazon’s products, not those by your third-party sellers (over 2 million). Your accountant or CPA may only be focused on the new economic nexus dates where your e-commerce business passed either a sales or transaction threshold in a state. Unfortunately, if they ignore physical nexus and register your business for sales/use tax with the economic nexus date, they may be helping you commit tax fraud.
Is your CPA a specialist on sales and local tax (SALT)? Not likely. Working with a SALT expert (as Sales Tax System has done) is a different skill set level vs. a CPA. It would be like going to your general doctor for brain surgery vs. an actual brain surgeon. Don’t be surprised if your CPA is not informed. Hopefully, your CPA will be smart enough to realize they are not an expert on sales and local tax, and they will ask for some guidance.
Here are the key points to share with them to bring them on board:
1. Share with them you are concerned that your stock in a third-party warehouse may create nexus, and you have to collect and remit sales tax.
2. Ask if they have experience with state and local tax.
3. Share with them some specifics as to why having inventory is nexus creating. Of the states that address it specifically, they often use different terms. For example, California (CA BOE Publication 77) uses the term “stocks of merchandise,” while Pennsylvania (Sales and Use Tax Bulletin 2011-01) uses the term “stock of goods.” In Arizona (Arizona DOR Publication No. 623), the state asserts that the ownership of tangible personal property (TPP) in the state is a nexus creating activity. For clarification, the property can be classified as real property, tangible personal property, or intangible property. When it comes to FBA sellers, your inventory will almost always be classified as tangible personal property (TPP).
4. Share with them a resource. Our “7 Costly Amazon FBA Sales Tax Mistakes Most E-Commerce Businesses Make” is a great report that will help bring them onboard.
As a client of Sales Tax System, we have recorded webinars with SALT experts that your CPA is welcome to watch to come up to speed. In the end, you will be doing them a favor by helping enlighten the world of Amazon FBA sellers and its requirements.