This guest post is brought to you by TaxJar
We talk to thousands of online sellers in our sales tax community, but many of their sales tax issues boil down to just five major questions. Today, we complied your basic sales tax questions into one place for easy reading!
1. From which buyers do I need to collect sales tax?
As an online seller, you are required just like brick and mortar retailers to collect sales tax from buyers in any state where you have sales tax nexus. Sales tax nexus is just a fancy way of saying “significant connection to” or “significant presence in” a state. Common business activities that create sales tax nexus for online sellers include:
- Having an office, store or other location in a state
- Storing inventory for sale in a warehouse in a state
- Having an employee, contractor, salesperson or other representative in as state
- Having a drop shipping relationship with a vendor in a state
- Having an affiliate in a state
- Selling temporarily in a state such as at a tradeshow or craft fair
2. Do I have to register for a sale tax permit right away?
We get this question a lot, especially from new Amazon FBA sellers who see that they have inventory stored in multiple states (and thus nexus in multiple states.) Sales tax accountants will tell you to let your risk be your guide. Always register to collect sales tax in your home state. But when it comes to registering in other nexus states, check out the When to Register for a Sales Tax Permit guide.
3. How do I make sure I’m collecting sales tax the right way?
Some states want you to collect sales tax based at your business address. Other states want you to collect sales tax at the rate of the address where you ship the product to your customer. Fortunately, most of the major online sales platforms provide an automated way for you to collect sales tax from your customers. When selling on a new platform, don’t forget to set up sales tax collection from buyers in your nexus states.
Always register for a state sales tax permit before you begin collecting sales tax!
4. What if I’m registered with the state, but I didn’t collect any sales tax. Do I still need to file a sales tax return?
The short answer is yes. Your state wants you to file a sales tax return even if you didn’t collect any sales tax. They consider this a “check in” to let them know you are still in business. If you don’t file a sales tax return by your due date, you’ll usually be levied a fine (even if you didn’t owe a single penny to the state in the first place. Ouch!) Some states will also revoke your sales tax permit if you fail to file continually.
5. I do retail arbitrage/online arbitrage. If I paid sales tax when buying an item, do I still need to collect sales tax when I resell it?
This is a very common question. Many sellers think that if they paid sales tax on an item they intended to resell then they don’t have to charge sales tax when selling it. However, sales tax isn’t paid on the item. Sales tax is paid on the transaction. So the short answer is yes, you’d still need to charge sales tax when selling an item, even if you paid sales tax on that item.
That said, you can avoid paying sales tax when purchasing for resale by using a resale certificate. You can learn what you need to know about resale certificates here.
I hope this post has answered some of your biggest sales tax questions (and some you never even knew you had!) For a whole lot more about sales tax, check out our Sales Tax Guide for Amazon FBA Sellers.
TaxJar is a service that makes sales tax reporting and filing simple for more than 8,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Stay strategic on Amazon! Get new blog posts sent to you via email: