When trading through marketplaces like Amazon, eBay, Walmart and others, we wrongly assume that the trading giants will take care of everything. Many people believe that if the Marketplace collects Sales Tax, then there is no need to think about the sales taxes, reports and the availability of Resale Certificate. Is this true? Let’s straighten this out together!
It should be immediately noted that this article refers ONLY to Sales TaxWe will not be discussing any other taxes.
Online business owners execute a Resale Certificate only upon request of the distributors. Such an approach is not correct. Perhaps you haven’t taken into account some other issues, our article will put things right.
Historically, “traditional” sellers collected the sales taxes only in their home state. However, along with the development of online trading many changes have taken place. Now sales tax collection starts with an important concept:Sales Tax Nexus❗️
Nexusis the presence (connection) of any of your business activities in a certain state, regardless of whether you are an online seller or running an offline business. Without any real physical presence, you still have to collect sales tax. All online sellers are required to comply with Sales Tax Nexus laws and to collect sales tax in every state where their business is located.
For this purpose special mention should go to the most common options for «Sales Tax Nexus»:
🔹 Home State Nexus
The state in which you live and/or where your business is registered. All purchasers in that state must be subject to sales tax.
🔹 Logistics and Premises
Warehouse, production and other storage locations (store, office, showroom, prep center), as well as the location of the equipment, form part of your Nexus. The sales tax should be collected in the states related to logistics and placement of goods.
For example, suppose you are doing business in Minnesota, the warehouse is located in California, and the production is located in New Jersey. All of these states form part of your Nexus.
🔹 HR
If your employees are located in different states, then those states can also be your Nexus. This is affected by the type of activity of the employee and the particular state of his location.
🔹 Contractors and Suppliers, Drop Shipping and Affiliates (Partners)
If the suppliers ship orders directly to your clients, then you will have to collect Sales Tax from the clients located in the same state as your suppliers. Nexus application depends on your tax status and delivery.
If a partner refers clients to you in exchange for a sales fee, this will create a taxable Nexus in some states upon reaching a certain volume.
🔹 Marketing
Exhibitions and trade shows, meetings, corporate parties, organization of conferences and fairs over the past 12 months also falls under Nexus. The sales tax should be collected depending on the state where your company was present.
🔹 Economic Connection or «Economic Nexus»
This obligation occurs when a certain sales turnover is attained in a particular state. The most popular Economic Nexus implies a sales turnover of between $100,000 - $200,000 or more than 200 transactions per tax period. Economic Nexus is an innovation that is in effect nearly in half of the states.
Company Procedure for Sales Tax Nexus
🔸Once a company has established Sales Tax Nexus in a particular state, it is responsible for the sales tax collection in respect of all clients in that jurisdiction.
🔸 The next step is to obtain a permit to collect sales tax. This is sometimes referred to as a “Seller’s Permit” (Seller’s Permit) or “Sales Tax License/Resale Certificate” (Sales Tax License / Resale Certificate).
Resale Certificate - is a document proving that you are a legitimate retailer or purchaser and are buying products to resell. It is unlawful to use a Retail Certificate to purchase items you do not intend to sell.
It is important to be registered before you start withholding tax from your purchasers. Tax withholding on behalf of the state government without proper authorization is unlawful.
Most states require the holders to have the permits to pay taxes from a US bank account.
How Sales Tax Nexus Works Now in Respect of Amazon
Let’s discuss case-by-case, when Nexus applies if you are using the FBA system?
🔹 You execute a Resale Certificate in the state of registration of your company. If you are a US resident, then that will be in the state of your residence.
🔹According to the founder of the Company “Tax Jar”, Mark Faggiano (partner in client tax accounting for Amazon, eBay, Walmart, Payoneer), you are required to be registered and to obtain a Resale License in all states where you have Amazon warehouses. This confirms the formal location of your product when selling under the FBA system.
🔹 You should be registered in all states where you reach “Economic Nexus” established in that state.
🔹 If you have employees or suppliers that meet the Nexus criteria for a particular state, then you should be registered and get certificates in this state as well.
Summary.If you have Nexus (connection) with a state, then all your purchasers in that state are subject to sales tax. Whether you are an individual or a company trading on the Amazon site in the US, you should clearly understand that a Resale Certificate must be issued in each state with which you have a “connection” – Nexus, and in which the Amazon centers you use are located.
We would like to inform all those who have not cooperated with us before that we issue Resale certificates in any state of the United States (except for those where they are not issued); we also register legal entities in the USA, European countries and offshore.
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