Hi, after losing my Amazon.com account due to delivery issues I’ve been forced to switch to FBA
I understand the basics of Sales Tax. I’ll have a nexus in any state where there’s an Amazon warehouse, and I’ll need to collect sales tax if I sell anything to any state where I have a nexus.
However, the practicalities of managing this have stumped me a bit. I don’t know where to start.
Firstly, I imagine there are some states where I won’t sell much to, and to be honest, if I’m only doing a couple of hundred quid a year to them, I’ll take the risk and if they catch me I’ll pay them the £10 I owe or whatever
On the other hand there may be one state where I do a lot of business and I’ll need to be registered and pay the tax.
I believe that Amazon will track it and charge the tax for me? Does anyone know how this works? And is it an all or nothing set up? ie. if I use Amazon‘s system will I automatically pay tax everywhere they have a warehouse?
Any help on my next step before I start sending stuff to FBA would be helpful
First of all, I am going to assume you have no legal entity in the United States, meaning no corporate registration, no property (except for the products), and no lease for an office. So with that, there is law, there is theory and then there is reality….
LAW: You cited the law and as you cited it, that would be correct.
THEORY: In theory you are supposed to keep track where Amazon moves your products and be registered in that state as you now have inventory (property) in that state. Amazon provides you with some tools to do that. You are supposed to register with each state where AMZ FBA put your product, even if it is only a single unit, and then collect sales tax for ALL sales of your products going to a resident of that state. You may even have to know the exact county location of the Amazon warehouse as the sales tax for that county through a local option add-on could be more than the state sales tax…. Confused yet? This is pretty common in major cities as they always find an excuse to add to the sales tax. (Just as an example, try to find a city in California that “ONLY” charges the 6.25% California Sales tax, most of them are 2 to 3 points higher… The cost of signing up to for each state’s department of revenue can be anywhere from $30 to a few hundred Dollars, so this can also add up… Don’t give up, now comes the reality!
REALITY: US States have not legal enforcement ability beyond the borders of their states! In theory they can go and seize property, but except for the People’s Republic of California (Money grabbing Socialists that are always broke), I would not worry about any other state. Amazon is required to collect sales tax for only their own products in various states, but that is not enforced on Marketplace sellers. I often buy items on Amazon that if the price is the same and both are available as Prime that are actually from a Marketplace seller vs Amazon. If you have products that are also offered by other sellers, especially Amazon, you end up with a concept of co-mingled inventory. In that case I see no way how any state, even the People’s Republic of California, can ever state what is your property and what is the property of other sellers or Amazon. I do believe you can exempt out of co-mingled inventory if you chose to only locate your products in specific warehouses.
But if you have unique products and you are truly worried about this issue, work with Amazon to keep your inventory in only 4 states, Delaware, Montana, Oregon, and New Hampshire. None of them have local agencies to collect sales tax as they have no state sales tax! I believe this is part of their “Premium placement” service which will have extra fees!
IN CONCLUSION This constantly changes to some extend and there are some political movements in place to try to collect it on a “Federal” level but until that happens, it will be a state by state mess.
In general California (being perpetually broke so they can offer all their free services to undocumented “residents”…) is aggressively trying to collect as much sales tax as possible. If you feel you have to choose at least one jurisdiction, then make it California. But this will open up a can of worms with them as they are going to try to get you for more bureaucratic money making schemes to extort money from you. Expect requests for some “requirement” to file as a foreign corporation or entity doing business in California, etc. etc. etc. With all that here are my suggestions in order:
1. Play stupid, do nothing! Just put your product in FBA until someone says something. Depending on your sales, that will probably be never.
2. Keep your products in the 4 states with NO sales tax, then you can tell all other the states to pound sand.
3. Deal with the money grubbing hands of the State of California and at least that will keep them at bay. Just know you open a can of worms with those blood suckers!
I hope this helps, I am not a lawyer or pretend to be one. But I play in this arena in the US and except for the state in which I have my business located (Florida), I don’t deal with any other tax jurisdiction.
The following users say thank you to Richard Meldner for this useful post:Dave Furness, Dave1
Cheers Richard, that’s massively appreciated!
Along with the all the other advice you have given me, I think it’s made me realise something else too. Perhaps you could confirm if I’m right…
It sounds as if the individual state is responsible for chasing you for the tax, and if they do come after you, then they aren’t that interested in telling other states. Does that sound right?
Reason I ask is that we only plan to put a handful of products in to FBA in the US and our current (non-FBA) sales of those products are only about $10,000 per year.
Assuming an equal distribution of orders between 50 states, that’s only $200 per year revenue, and therefore $12 tax for each state which will hardly be worth them chasing me. Even if FBA increased sales tenfold to $100,000. It’s only be around $120 tax. Again, it’s probably not worth them spending time chasing me.
Even if they did chase me, get the tax back, along with penalties, it’s only going to cost a couple of hundred dollars to sort out any state that’s after me
Does that sounds right?
I was previously thinking it as a whole. In other words, the US in general would come after me for ALL the tax I owe in all states. But the way you explained it sounds as though it’s a state by state thing.
Thinking acting dumb sounds like a good idea at the moment. Assuming Amazon don’t force the issue on me in some way that is.
Dave, that is correct, it is a state by state thing with no Federal method to enforce collection. Do states collaborate, maybe at some level… but with the level of sales you are talking about (even if you 100 fold them of your original estimate) even the People’s Republic of California’s Franchise Tax Board (that is what they call it their sales tax agency there…) would have a very hard time justifying spending the few waking hours per employee chasing you.
From a legal point of view, for them to have any idea what you are selling, each state would have to subpoena Amazon‘s records for their own state sales only, determine how much they think might be owed to them, start some sort of collection effort, and if there is no response to get any money, file a lien against the property before they could even theoretically seize it. Then what will they do with the property? They want cold hard cash so they are looking for bank accounts to levy and if for some reason you decide you need a bank account in the US, put it with a small bank in one of the 4 states I mentioned that has no branches outside that state. States cannot place levies on bank accounts not held in a bank that is outside of their jurisdiction. Large banks (such as Chase, Bank of America, etc.) with branches in a state where a state agency is seeking a levy on the bank account, can be legally forced to observe a state level levy. But before it would get to that kind of point, you are talking at least a year, mostly likely two, three ore more of a collection efforts.
Also most states that have forced large eCommerce sellers to collect sales taxes have minimum thresholds already in their laws and I have never heard of one that was below $500,000 in revenue per year. In theory a resident of a state that has state sales tax is responsible of self reporting products they purchase from out of state and then paying sales tax on it…. how many people do you think do that? LOL
That is why the law and the reality are very different. The states are all complaining about lost tax revenues, but their first source is to plug the major holes like Amazon and other larger e-retailers with so called “Amazon Laws”. There are attempts to try to Federalize this issue and redistribute moneys collected on a Federal level, but that would require first to create a Federal Agency to deal with that. With a Republican Congress, House, and a Republican President, I see the chances of that happening as near zero!
Bottom line, put your products in FBA and I wouldn’t loose any sleep over sales tax unless Amazon gets forced to deal with it. And in that case I will assume for their own interest, they will create some sort of method to collect, report, and submit.
The following users say thank you to Richard Meldner for this useful post:Dave Furness, Dave1
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