Are Remote Sellers Considered an In-State Seller or an Out-of-State Seller?
A remote seller must determine if you are an in-state or out-of-state seller before registering for sales tax. When you register for sales tax in all the states where you have nexus (physical or economic), you need to make sure you fill out the correct sales tax application or check the right boxes when applying online.
This may sound straightforward, but since the 2018 U.S. Supreme Court Case Wayfair vs. South Dakota, it has become more complex.
In the past, an Amazon FBA seller would register in the states where you first had stock and sales and would register as an “out of state” seller, typically for a “use tax permit” even though we commonly use the term “sales tax permit.” You had stock in the state via Amazon FBA, but that was it.
Now that most states have economic nexus thresholds, you have to factor that into the mix. Some states want you to update your tax account from an out-of-state seller to an in-state seller (Colorado is an example). If you registered as an out-of-state seller for a retailer’s use permit and passed the Colorado economic nexus thresholds, $100K, or 200 transactions by December 1st, 2018, you need to update your tax account for a Colorado Sales Tax license (as an in-state seller).
Dig Deeper as Remote Seller’s Determine if They are an In-State or Out-of-State Seller
In South Carolina, if you are a remote seller with only FBA stock in the state, and you later pass the economic nexus thresholds, there is a different sales tax application to mail (if you don’t have an SSN or ITIN). If you have either an SSN or ITIN, you may register online, which happens to have only one application. Each state is different.
Here are the guidelines for a remote seller to determine if you are an in-state or out-of-state seller:
In-State Seller: You have physical nexus in the state, either through FBA stock, an entity formation, home office…
Out-of-State Seller: You have economic nexus because you passed the threshold.
What about the states where Amazon, as a marketplace facilitator, collects on your behalf? Do you need to register for a sales tax permit?
If you are selling on Amazon (not using FBA), you may be considered an out-of-state seller and, if the state is also a marketplace facilitator state where Amazon is collecting, you may not need to register for a sales tax permit.
If you are selling on Amazon via FBA, you are now considered an in-state seller, and you now may be required to register for a sales tax permit, even if the state is a marketplace facilitator state where Amazon is collecting and remitting.
As an out-of-state seller in Minnesota, it is possible you do not have to register for a sales tax permit.
-If you’re an out-of-state retailer that only sells through a marketplace:
You are not required to register and collect Minnesota sales tax.
-If you’re an out-of-state retailer that has sales during any 12 consecutive months, that total either $100,000 in 10 or more retail sales, or 100 or more retail sales shipped to Minnesota through a marketplace facilitator, as well as other avenues:
You are required to register for sales tax collection.
If you’re an in-state retailer but only sell through a marketplace facilitator that is collecting and remitting on your behalf:
You are NOT required to register to collect sales tax. Keep in mind, if you were selling Amazon FBA (a marketplace facilitator) PRIOR to the marketplace facilitator effective date 10-1-18, your business would need to register to file past returns and pay the past sales tax due.
If you’re an in-state retailer that sells through a marketplace as well as other avenues (could be your own website, a Shopify store, etc.):
You are required to register for sales tax collection.
Washington is simple: they require you to register for a sales tax permit in every situation.
If you’re an out-of-state retailer that has sales during any 12 consecutive months that total more than $100,000 or 200 or more separate transactions into Washington (this includes sales made through a marketplace facilitator):
You are required to register for sales tax collection.
If you’re an out-of-state retailer that only sells through a marketplace:
You are required to register with Washington if the above condition applies.
If you’re an out-of-state retailer that sells through a marketplace as well as other avenues and exceeds the above thresholds:
You are required to register for sales tax collection.
If you’re an in-state retailer but only sell through a marketplace facilitator that is collecting and remitting on your behalf:
You are required to register for sales tax collection.
If you’re an in-state retailer that sells through a marketplace as well as other avenues:
You are required to register for sales tax collection.
*Note: WA also has a business tax known as the B&O tax, which marketplaces do not remit on your behalf and which will be due on your WA sales tax returns. Most remitting companies will offer to file this for you.
Connecticut gets more complex. As an out-of-state seller, if you are not selling through a marketplace facilitator and don’t meet the threshold, you don’t have to register (or as an in-state seller with small, casual sales). Make sure you pay attention when you complete the sales tax application. If you are selling on Amazon FBA, you are in state seller with Amazon collecting and remitting. You are required to register for sales tax by completing Form REG-1. When you register, select the new box in the sales tax section of Form REG-1, declaring that you make sales only through a marketplace facilitator. You will be registered for sales tax on an annual filing frequency. Annual filing helps save on remitting fees.
Now with the different types of nexus, this adds to the complexity of sales tax registrations (and for a use tax permit or sales tax permit). Keep in mind, more states are evaluating if you need to change from an out-of-state to the in-state seller and, if a marketplace facilitator state, if registration is required at all.
Some states are looking at separately the marketplace facilitator sales from non-marketplace facilitator rules. This is good news for those Amazon FBA sellers, only have a few sales on their own web site or a Shopify store.
Keep in mind. Currently, most states still combine these sales from the marketplace facilitator and non-marketplace facilitator states.
This means if you passed the state’s economic nexus but are not collecting because you are only selling on a marketplace facilitator. They are collecting and remitting on your behalf. It may be very costly (with registration costs and remitting services) to start selling on a Shopify store or your own website unless you plan to scale that part of your business quickly.
