Sales Tax Compliance Tips Before Your Holiday Sales Skyrocket!
As an Amazon FBA seller, it is your responsibility to collect and remit sales tax in the states you have nexus (stock). In order to collect sales tax as well as be in sales tax compliance, you must first have a sales tax permit (or license) in each state where you have nexus.
Update November 2019: Amazon is now collecting in 34 states, and there are only 8 FBA states where you may have stock, that you will need to collect and remit sales taxes. Those include: Florida, Georgia, Illinois, Kansas, Michigan, North Carolina, Tennessee, and Wisconsin.
If you were behind on sales tax prior to Amazon collecting and remitting, that means registration is required, you need to file past returns, past the past sales tax, penalties, interest and determine if you are able to close out those tax accounts.
If you are selling a product that is responsive to holiday sales (where you may experience a 3x – 5x growth in sales, now is the time to evaluate your sales growth to determine if you should apply for sales tax permits now vs after the holiday season is over. Remember, every day that goes by that you are not collecting and remitting sales tax when you have nexus, you will be paying sales tax, penalties, interest, and fees for past returns out of your own pocket.
Here are the steps and our services to help you evaluate these critical steps and decisions to best manage your cash and compliance requirements.
● Determine your estimated gross sales from November – January (this will help determine which states to apply for sales tax permits before and after this time period).
○ Closely monitor sales in the other states and balance the time frame to apply; some we have to mail in the application with a SSN (which may take 8 weeks) vs applying online in several states. There are 12 economic nexus states that Amazon is also NOT currently collecting and remitting and they include: Arkansas, D.C., Georgia, Hawaii, Illinois, Kansas, Louisiana, Michigan, Mississippi, North Carolina, Tennessee and Wisconsin.
○ After applying for sales tax permits, some states require a tax account (username and password) to be set up in order to remit sales tax. We do this for you with our sales tax registration service.
○ Apply for Sales Tax permits. Typically, a new seller will wait as your stock goes to a few Amazon.com FBA warehouses (where Amazon is not collecting) and travels around and determine when to apply for permits, which will trigger sales tax compliance. There are a couple of states that are exceptions with FBA stock, where registration is still required even if Amazon is collecting. Washington is one of them.
○ Because of this time of the year, with the holiday sales around the corner, odds are your sales will jump dramatically and you will want to apply for some permits even before stock shows up in those states. We would apply for sales tax permits with a November 1st start date and you would update Amazon Seller Central with your permits to start collecting.
● Colorado requires foreign qualification up front when we apply for a permit, and now requires 3 permits for one state. All other states only require one permit. This may be a state you wait to apply.
● As we apply for permits in late October, they will come in over the next 1-6 weeks and you will update your Amazon Seller Central Account. We have a cheat sheet for you to update your tax settings.
● Remitting Sales Tax will come into play either on a quarterly or monthly basis in most states. We will recommend our preferred vendor for remitting sales tax and when it makes sense to register to be prepared to remit by December for the month of November. Most states you may be on a monthly basis; some you may have to remit quarterly (that is covered also by Sales Tax System).
● Are you based outside the U.S.? As a foreign seller, you will have about $1,200 per sales tax filing period (for about 8 states) when you have a US Bank Account. It is required for MOST U.S. remitting companies to automatically remit sales tax to the US via an ACH. This would require a US company for us to establish a US bank account. If you only have a couple of states that you need to remit, you will either use a foreign credit card or reach out to that states for their payment options as a foreign seller. You may have to work with your remitting partner to wire them the money to file on your behalf (if that is offered). If you have a U.S. entity and need support with opening a U.S. bank account please reach out to our team at [email protected]