Why You Should have an ITIN as an Ecommerce Seller?
If you are an e-commerce seller without an ITIN (an equivalent of a SSN), you may want to consider applying for one very soon. Here is a link to read more about the ITIN.
Yes, we realize it is not required to sell on Amazon, but it is required to register for sales tax in several states.
Over the years, we have registered for thousands of sales tax permits and foreign sellers without an ITIN. The ITIN comes into play when a state asks for the owner of the business structure. Some states, like Arizona, don’t allow you to name a foreign entity, even if that is the owner of the U.S. LLC.
There were and still are a few states that will allow you to simply use the word “Foreigner” on the application or skip the step in the online process, but that has changed a lot in the last year.
States want to know the responsible individual if sales tax is not paid by the operating company, usually an LLC or corporation.
We have addressed this with states by sharing with them that 99% of foreign sellers do not have an ITIN and they are very difficult to obtain from the IRS. And the state would be losing revenue by making it very difficult for foreign sellers to get registered (because of the ITIN). They are not listening.
In the end, our concern for you is the states that are a notice and reporting state, because they have the biggest fines if you are not in sales tax compliance. States now have the ability to go after funds in any US bank account linked to a state where you may owe back sales tax. In the near future, you may see states where sellers have sales tax liens and the potential of having inventory seized (similar to what has happened last year in Germany).
Arizona and Oklahoma are two states (this may change in the future) that require an ITIN or SSN, to complete the sales tax registration):
Arizona & Oklahoma Require an ITIN to Register for a Sales Tax Permit
Oklahoma is the problem state for sellers without an SSN or ITIN. Why? They are what is called a Remote Seller Notice and Reporting State, and if you do not register to collect and remit sales tax, you will have to send a notice to every customer in the state to pay use tax; and, if you don’t do that in a timely manner, you are subject to fines with a MINIMUM of $20K or 20% of the previous 12 months sales, whichever is less per occurrence for each notice missed. All other sellers with a SSN or ITIN will decide just to register in Oklahoma (after they pass the threshold of $10K in sales) as of 7-1-18. The $10K in sales applies to the previous 12 months (July 2017-2018).
Arizona is also a state that requires an ITIN (by the owner) or SSN in order to register to collect and remit sales taxes. It was different before and a foreigner was able to finish the process to apply for a sales tax permit. Arizona is not a notice and reporting state, but is an FBA state but not an economic nexus or reporting state like Oklahoma.
You have two options.
1. Go through the process to apply for an ITIN. This may take 3-6 months to apply via the IRS. We have seen them take even longer. Normally, an ITIN is applied for (form W-7, https://www.irs.gov/forms-pubs/about-form-W-7) when a foreign seller needs to file a US personal tax return, 1040NR for example.
2. Get into compliance with the notice and reporting rules, which are as follows (yes these sound crazy, but they are the requirements)
a. Post a conspicuous notice on the platform
b. Provide a notice at the time of sale
c. By January 31st of each year, send a notice to EVERY customer
d. By January 31st, of each year, provide the state with a list of customers
It has been almost impossible to find a tax firm willing to commit to the process of applying for an ITIN, especially not related to the 1040NR filing process, because of the massive follow-up and frustration with the IRS. We have a partner who is now offering this service, and we wanted to share that resource with you. We have worked with this tax attorney and their firm before and they do great work.
What is Required?
Here is a detailed outline of the process:
Obtaining a US tax identification number can, unfortunately, be a complex and capricious process, so only read more if you need one. Individuals need an ITIN (individual tax identification number) and companies need an EIN (employer identification number). The name EIN itself is confusing because a company does not have to be an employer to need an EIN. We’re focusing here on the ITIN application (Form W-7) as that’s complicated enough.
As the IRS is concerned about people obtaining ITINs to file fraudulent tax returns, the IRS is strict about the supporting documentation it approves and often rejects applications. The documentation must establish your identity and connection to a foreign country. The best documentation to work with is your passport, and there are 2 general ways to do this. If you’re in the US, you may find a Certified Acceptance Agent (CAA) and show him/her the passport. If you’re outside the US, the most efficient next step is to go to the US Embassy or Consulate closest to you and get your contact to certify the passport.
He/She will do this by making a photocopy of the photo page, stamping it so the photocopy has a raised seal, and then signing it. That original document must be included with the ITIN application.
These 2 methods almost always work best.
Furthermore, the IRS generally likes to see a taxpayer’s first year US tax return attached to the ITIN application. While there are exceptions to this rule, we’ve seen them apply only in a few circumstances.
So, to make sure we’re all on the same page, to increase your chances of getting an ITIN, include one of the above passport options and your first year US tax return.
Other alternatives include sending your original passport (or a certified copy issued by the agency that gave you the passport) but the former means you don’t have a passport while you wait (which could be a few to several months) and the latter is also time-consuming.
If using a passport, that is the only identification document needed.
There are other methods but, in our experience, they are likely to delay the process. Those include:
- The following may be used to show identity only:
- US driver’s license
- US military ID card
- Foreign driver’s license
- US state identification card
- The following may be used to show showing foreign status or identity.
- US Citizenship and Immigration Services (USCIS) photo identification
- US visa
- Foreign military identification card
- National identification card (need name, photo, address, date of birth and expiration date)
- Foreign voter registration card
- Civil birth certificate
- Medical records (for dependents under age 6)
- School records (for a dependent under age 18, if a student)
It is worth the effort to obtain the correct documentation to increase chances of timely receiving an ITIN. We’ve seen such things as names changes and adoptions severely delay or halt the entire process.
The process may take from 3-6 months. It is shorter generally if a 1040NR personal U.S. return is due at the same time.
If you are interested in going through the ITIN process with our tax attorney resource, reply to this email, and we will provide an introduction email for you.