What does Amazon’s decision to start collecting sales tax nationwide mean for third party sellers?

 
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By: Becca Perryman, Senior Manager

Beginning April 1, 2017, Amazon began collecting sales tax in every state imposing such a tax. Many businesses are wondering what this decision  means for them.  Here is what you need to know:

After years of fighting to keep online purchases tax free, Amazon has officially conceded.  Over the last few years, Amazon has gradually added to the list of states where it collects sales tax.  Now, Amazon files in all 45 states that impose a sales tax as well as in the District of Columbia.

The decision comes, in part, as Amazon’s business model moves towards offering faster delivery options. Fulfilling orders within a day or two requires a vast network of distribution centers, which translates to increased “nexus,” or significant physical presence, in states.

Amazon’s decision to file everywhere has many of its third party sellers wondering how this will impact them.  The short answer? It doesn’t—at least not yet. But it could.

Amazon’s decision to file everywhere applies only to sales directly from Amazon.com LLC or its subsidiaries.  This represents about half of Amazon’s online sales. The other half are attributed to over 100,000 third party vendors, who are not directly affected.  Amazon does not collect sales tax on behalf of third party vendors, regardless of whether sales are merchant-fulfilled or FBA (fulfilled by Amazon). Even Amazon Pro Sellers – those who, for a fee, use Amazon’s tax collection services – remain themselves responsible for setting up the appropriate sales tax settings, registering with states, and reporting and filing sales tax.

As before, however,  third-party sellers are responsible to file and pay sales tax in states where they have established sales tax nexus. 

What is nexus? The term is broadly construed and can take many forms, but generally translates to having “sufficient connections” to a state such that the state can enforce a filing obligation there. In most cases, this means having a physical presence, which includes storing inventory.  For FBA sellers, this means that you have nexus in states where Amazon has a distribution center or warehouses your inventory.  Some states have more expansive nexus provisions, such as affiliate nexus, click-through nexus, or economic nexus. These  could lead to a filing obligation where a connection to an in-state affiliate exists, where links on a website generate referral business, or where a business exceeds a certain threshold of sales.

What’s more, many people speculate that Amazon’s decision to file everywhere could lead to state tax authorities obtaining  the identities of third party sellers, encouraging states to take a more aggressive stance on taxing remote sales.  Given this, it is imperative that e-commerce merchants understand nexus and comply with filing responsibilities in the states where they make sales.

True Partners Consulting can help you determine where you have nexus and what to do if you aren’t currently filing in a state where nexus exists.  For more information contact Becca Perryman at 312-588-3425 or Rebecca.Perryman@TPCtax.com.

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