This is the ninth installment in my series about the differences between the eBay and Amazon selling platforms. For each of the next six weeks I will continue to discuss these areas and try to dispel some of the myths that surround selling on Amazon.com
I asked veteran Amazon sellers via Facebook what differences they found between selling on eBay and Amazon FBA. There were ten areas identified as noticeably different between the two platforms:
- What You Can Sell
- The Rules
- Customer Service
- Getting Paid
- Sales Tax
- Profit Potential
"Online sellers must collect sales tax in states or localities where they have 'sales tax nexus.'" TaxJar
Sales Tax is a complicated topic especially now with new State and potential Federal legislation that directly affects online retailers. As an eBay seller, whether it's a hobby or a full-time gig, you are required, by state laws, to collect and remit sales tax for sales to buyers in your state. There are a five states that do not have state sales tax (AK, NH, MT, OR, DE) and eBay sellers in these are off the hook for collecting sales tax.
Amazon is a huge corporation with fulfillment centers all over the country. As a third party seller with inventory in many different warehouses all over the country, you run smack into a tax term -NEXUS – which in enforced differently in various states.
Nexus – Defined
Nexus is “...the determining factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state. Nexus is created if your company maintains a temporary or permanent presence of people (employees, service people or independent sales/service agents) or property (inventory, offices, warehouses). The temporary presence is created through traveling people visiting states to call on customers or prospects, trade show attendance, or consigned inventory in warehouses.” Sales Tax Institute
How does this affect Amazon FBA sellers?
To put it simply, if you store items in one of Amazon's warehouses in a state which requires retailers to collect and remit sales tax then you are required to as well. . However, if you do not have inventory (or otherwise defined nexus) in a state then you are not have to collect sales tax. Unfortunately, it's not that simple.
As business owners we are required to pay sales tax in those states where we “do business”.
"Failing to collect and file sales tax creates a potential tax liability for the company in that state. This potential liability can quickly become an actual liability if the company is audited by the state and an assessment is made for the past due taxes. Generally, there is no statute of limitation for past due taxes if returns have not been filed. Ouch!" TaxJar
Ask yourself the question, “Do I store products in this state?” If you are or plan to sell on Amazon using FBA the answer to this question for many states will be yes.
There are many sides to the argument of online retailer sales tax liability on a state by state basis. Two that usually stand out are:
1) I collect sales tax in my state and that is sufficient. I’m just a small nobody seller. How will a state ever find out about me to do a sales tax audit?
2) As an online retailer you should run your business like a business. Which means you should follow the laws of the states where you do business.
The internet is huge but it also makes everyone more accessible which means finding you and your business, no matter how small, is easier than it once was. In the end, it comes down to risk. If a state were to find you and audit your business what would your tax liability for that state be? However, this doesn't mean you need to be all setup before you sell your first item. In practice, many sellers implement slowly – one state at a time (starting with their own). Don't let sales tax be an obstacle to your business growth.
This is a decision that you as a business owner need to make for your business. Educate yourself by reading relevant information by certified and knowledgeable people on the topic of nexus. It is complex. I recommend that if you are confused and have questions consult with a CPA that is familiar with online retail and nexus.
Check out the following links to educate yourself about Nexus and how it will affect your business.
Introduction to Sales Tax by TaxJar
Sales Tax Compliance and the Amazon Seller eCommerce Bytes
Amazon Sales Tax by StateSalesTax.com
Dealing With Taxes For eBay and Amazon Sellers by Skip McGrath
Your next step is to set aside 30 minutes to familiarize yourself with the sales tax and how it affects your business. Put together a list of pros and cons.
Come back and share what you learned.
Don't let sales tax stop you from taking your business to the next level. Understand it, discuss it and take the necessary steps for your business. If you have any questions or comments be sure to post them below.
What are you doing today to move your business forward?
Interested in selling on Amazon with Fulfillment by Amazon (FBA) or know someone who is? Not sure where to start?
Amazon FBA Launch Pad is the most current and comprehensive step-by-step guide to LAUNCH and GROW your Amazon FBA business from novice to startup success without spending a fortune. To find out more information click HERE.
If you are looking for more specialized one-on-one direction to grow your business and or manage your life balance, I highly recommend heading over here and checking out the individualized coaching available from the amazing Kristin Ostrander.