SALES TAX NEXUS
The laws concerning selling online are changing. Online sales were once the wild west. The government has been moving at a snail’s pace to keep up with regulation, but finally some new laws have been created, most notable Market Facilitator laws. It’s best if we start from the beginning…
In the past, collecting sales tax from online sales got confusing quick. Let’s say your business is operated out of California, but you store your inventory at a fulfillment center in Ohio, and you sell to someone in Florida, does that customer owe sales tax? The legal term dealing with all this is called: nexus.
A nexus is a connection between a seller and a state. If there is a connection, the seller is required to register, collect, and remit sales tax on sales made in the state. So if you have a physical presence in a state, you should be collecting sales tax from any purchases made within that state. And according to some governing bodies, storing your inventory in a fulfillment center counts as a presence. But there’s no real way to regulate that.
For instance, if you sell through Amazon you don’t even have a say which warehouses they store your goods. You could be in several random states. And you would have to have a seller’s permit for each state and be constantly collecting and remitting sales tax per state. Which let’s be honest, that ain’t happening. Most sellers on Amazon only collect tax from buyers located in their home state. It seems no average seller has ever gotten into any trouble. Most states are clueless that you even have inventory within their borders. How would the state know what Amazon has in that warehouse? But technically if you fail to collect sales tax in a state where you have a nexus, you could be held responsible for the sales tax, along with any penalties and interest.
That was the past. Now many states (but not all) have created Marketplace Facilitator laws. These laws make companies like Amazon (and other third-party platforms which facilitate retail sales) collect and remit sales tax on behalf of their users. So now Amazon is responsible for collecting and sending your sales tax to the government. This does make your life easier, but there are issues.
Amazon doesn’t just collect sales tax from the state you’re doing business in. Amazon collects sales tax from all customers who live in states with Marketplace Facilitator laws. They basically said screw it, even if your product isn’t specifically stored in one of those states, we’re just one big nexus. So if your business is in California, you were only charging other Californians sales tax. But now Amazon levies the tax to most of your other customers as well. So basically your customers have to pay more. In addition, Amazon has always charged a fee (2.9% of the sales tax) for collecting the sales tax on your behalf. And since they’re now collecting tax from way more customers, you’re being charged more nominal fees.
The good news is, if you’re only selling on a platform like Amazon, then in theory you could skip the process of registering for a seller’s permit in every damn state. This is in theory. The states seem satisfied with the fact they’re now getting tax money they weren’t before. They don’t really care about you having a permit in every state, just as long as they get your sales tax money. You would still need a permit and have to file if you were making sales some other way in that state, like through a storefront. Amazon doesn’t do all your sales tax, only the sales through their website.
California requires that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay. There is even a section where you can say Amazon are already submitted my sales taxes for me.