Just as selling through online retailers has drastically changed how your clients do business, it has also changed how accountants think about sales tax.
For years, consumers shopped online, shielded from sales tax, but with increased online spending on Amazon, Etsy and other online marketplaces, local tax jurisdictions have taken note of the millions of dollars in lost sales tax revenue – and they’re working to obtain it.
These are fast-paced and changing times for Amazon and other online retailers and also for individual states. We routinely hear how states are trying to increase tax revenues from remote sales. For example, as of January 1, 2018 Amazon is collecting and remitting Washington state sales tax on third-party marketplace sales.
Amazon collects and remits sales tax on its own sales in all states with a sales tax, but only collects and remits on its third-party sales in a handful of states. As of April 1, 2018, Amazon is collecting sales tax on behalf of third-party sellers in Pennsylvania and Puerto Rico.
And, in certain states, (e.g. Massachusetts and Rhode Island), Amazon has agreed to hand over the seller’s information to the state Department of Revenue. Meanwhile, a number of states are implementing notice and reporting requirements for non-collecting sellers to encourage them to collect and make it easier to enforce use tax compliance.
Sales Tax Primer for Your Amazon Seller Clients
With continued ongoing growth and need to find efficiencies, Amazon has set down roots in numerous states by opening warehouses to hold product inventory. Having this sort of physical presence in a state exposes Amazon to state nexus – a critical criteria for a state to require sales tax collection, filing, and remittance.
One of the key concepts of determining sales tax burden is physical presence. Nexus is defined as a “connection to or presence within a state” and it’s the first thing you want to consider when looking at how your ecommerce client will manage sales tax exposure.