Economic nexus and the changing sales tax landscape
Fulfillment by Amazon (FBA) makes a lot of things easy for online sellers — but sales tax has never been one of those things.
Sure, Amazon will collect and remit taxes for you in marketplace facilitator states, but you still have to file returns. You can set up your account to have tax collected in other states where required, but what states are those? Everywhere you sell? Your home state? Only the states where your inventory is stored in Amazon warehouses?
And now you’ve got to consider states with economic nexus laws, too.
These laws create nexus for sellers who reach one or more sales totals and/or transaction volume thresholds in a given state. Whether these laws could actually be enforced was in question for some time, until the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. this past summer, which overturned the physical presence rule it had previously upheld. This means states that already passed similar laws will certainly be looking to enforce them — and more of these laws likely are on the way.
We’ll give you a general primer on economic nexus laws below, but to learn more about these laws in the states where you sell most, visit our easy-to-use economic nexus tool. You’ll find state-by-state details and links to state websites for official information.
Economic nexus 101
In states with an economic nexus law, reaching a certain volume of sales and/or transactions means your company has nexus in that state. For example, the threshold in South Dakota is $100,000 in sales or 200 transactions. Some states require you to reach both transaction and revenue thresholds before you have nexus. And some states have only a sales threshold.
Those numbers can vary by state, so even if you think the ones above are out of reach, you might find yourself reaching the threshold in another state. And transactions can add up, particularly if a big part of your customer base is in one state or you sell a lot of small items.
The period for meeting the threshold also can differ depending on the state. In some, reaching it in the previous or current calendar year creates nexus. But others use a rolling 12-month period.
Do all sales count toward the threshold? What about shipping?
As with most other sales tax questions, this one varies from state to state as well. Some include only tangible property, but there’s at least one state that calls out digital items, too. Generally, products and services that are taxable in a state will likely count toward that state’s transaction and sales thresholds.
I hit the threshold. Now what?
The not-so-easy answer: It depends on the state. It’s not quite clear in some states whether you would collect taxes only on transactions that come after the threshold, or whether earlier transactions in the period would be subject to tax. It’s best to either ask the specific state directly or work with a tax professional.
What is clear is that you’ll need to register for a permit from the state in question before you set up your Amazon account to collect any sales tax — otherwise, you can’t legally charge sales tax. (Check out our previous post on getting a sales tax permit, and if you have to register in a bunch of states, Avalara Licensing can help.)
Of course, you’ll also need to remit the taxes you collect to the state and file sales tax returns, depending on the schedule of each particular state. But that’s precisely why we created TrustFile — to automate the process and help businesses like yours ease the hassle.
You’ve already got a lot on your plate as an FBA seller and small business owner. Try taking something off of your plate for once — get in touch with us at 877-759-6520 or visit avalara.com to learn more.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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