Some of our biggest headaches in business are the result of states continually seeking new ways to increase revenue and to “steal” from our margins. Government jurisdictions for decades have made income and sales tax regulations extremely complex and very difficult to comply with. In my continued pursuit of finding answers to how our businesses can effectively comply with tax regulations, I recently stumbled upon a podcast episode from Scott Voelker (www.theamazingseller.com) where he did a great job interviewing Mark Faggiano, the founder of TaxJar (www.taxjar.com).
I must give credit where credit is due. Mark does an amazing job in this interview of answering some difficult questions around sales tax as it relates to online sales. He even goes into some specifics on dealing with Amazon FBA and the ramifications of selling inventory that is stored in Amazon fulfillment centers across the country.
Have you heard the term “nexus” used in sales tax discussions? Well, it is one of the most important aspects of the taxation law to understand as it helps us determine what online sales qualify for sales tax collection. In a nutshell, nexus refers to “the place where you as a business are actually doing business”. In all cases, your business has nexus in the state in which you reside and do your work. You may also have nexus in other states where you have employees or warehouse inventory. It is important to remember that state regulations typically require your business to collect sales tax on any sales made to residents of states in which you have nexus.
I am a little wiser after having consumed this interview and its rich content. Here are 3 nuggets of wisdom that I was able to dig out:
- When we determine that we have nexus in a state, we must get a sales tax license in that state, collect sales tax from customers in that state, and file sales tax returns in that state.
- If Amazon sells your inventory and collects sales tax from your customer, Amazon does not send that tax to the state on your behalf but rather gives you the money to remit to the state yourself (along with the proper sales tax returns with that state). It is your responsibility, not Amazon’s, to stay in compliance.
- Most states unfortunately have numerous “layers” of sales tax compliance requiring us to pay close attention to staying in compliance with not only the state government but also the many jurisdictions that may also be looking for tax returns and remittances (i.e. county, city, school district, utility district, etc.)
Do you need help with sales tax compliance? Contact us with questions or go check out www.taxjar.com.