The start of a new year means new opportunities. It is always an exciting time for any business owner. But for many of us Amazon sellers, January is also a time for sales tax. Most U.S. states require sellers to report sales tax collections in January. Right on time, we are teaming up with our friends at TaxJar.com to provide insightful tips and best practice for you so that you can manage this effectively & save yourself some time.
I asked the CEO of TaxJar, Mark Faggiano, to share his 5-step process that he recommends for Amazon sellers…
If you’ve sold products for any length of time you probably already know what a pain managing sales tax can be. You need to figure out how much tax to collect while navigating each state’s laborious sales tax filing process. This little administrative task can take up a disproportionate amount of your time and distract you from focusing on the business side of things.
Sales tax gets especially complicated if:
- You sell online
- You sell online and are required to collect sales tax in more than one state
- You sell on multiple online channels
- You sell online AND face-to-face
- All of the above!
This post will walk you through the 5 steps of handling sales tax and offer some concrete tips on eliminating the hours you spend on sales tax management.
1. Know Your “Nexus”
Merchants should collect sales tax from buyers in states where the merchant has “sales tax nexus.” Sales tax nexus is just a legalese way of saying a “significant connection” to a state.
You have sales tax nexus in the state where you operate your business, but some business activities mean you have sales tax nexus in other states, too. For example, having an employee or contractor, office, or even goods in a warehouse in another state can create a nexus relationship with that state. Check this resource to determine where you have sales tax nexus.
2. Register for Your Sales Tax Permits
So you’ve determined where you have sales tax nexus. But before you collect, do one more thing: register for a sales tax permit. States require that merchants obtain a sales tax permit before collecting sales tax from buyers. In fact, many of them consider it unlawful to collect sales tax from buyers if you don’t have an active sales tax permit.
When you receive your sales tax permit, you’ll also receive information about your sales tax filing frequency and due dates. So states want you to file annually, some quarterly and some monthly. This generally depends on your sales volume. And since states govern sales tax individually, every state could be slightly different.
Find out more here about registering for a sales tax permit.
3. Collect Sales Tax
Now you know in which states you need to collect and you’ve secured your sales tax permits. Your next step is to collect sales tax from buyers in states where you have sales tax nexus.
You set this up through the individual platforms through which you sell. Setting up the sales tax collection through Shopify is different than if you set up sales tax collection through Square. TaxJar’s sales tax guides about each platform can help!
4. Report How Much Sales Tax You’ve Collected
Here’s the step where sales tax begins to get tricky. As your sales tax filing due date approaches, it’s time to figure out how much sales tax you collected. You then need to file a sales tax return in your state (or states) and remit the sale tax you collected.
The trouble is that this can get complicated, especially if you sell on multiple platforms or collect sales tax from buyers in multiple states. If you try to do this manually, you’ll likely find yourself trying to slice and dice numbers in a complicated spreadsheet. To make matters worse, a majority of states want very detailed reporting. They not only want to know the total amount of sales tax you collected from buyers in the state, they want that amount broken down by city, county or other tax jurisdiction. With almost 10k taxing jurisdictions in the country, this can quickly turn into a nightmare.
This is where TaxJar comes in. TaxJar integrates with the payment processors you use and calculates your sales tax collected for you. This includes from channels like Amazon, to shopping carts like Shopify, to POS systems like Square.
We then serve up the information you need to file in return-ready reports.
5. File Sales Tax
Now that you’ve figured out how much sales tax you’ve collected and broken it down the way the state wants to see it, it’s time to file. You can either file online, by mail or let TaxJar file your sales tax for you with AutoFile. This saves you the time of paying and filling out sales tax returns line by line. With some states this is through two different platforms.
Once you’ve filed your sales tax return (or returns, if you must file in multiple states) then you’re all set. You can get back to the fun parts of running your business!
Do you have sales tax questions? Start the conversation in the comments!
Mark Faggiano is the founder and CEO of TaxJar – A service built to make sales tax compliance simple for eCommerce sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Author: Shane Stinemetz
Jiu Jitsu fighter, Sci-Fi lover and Digital Nomad. After becoming an FBA seller, Shane left the tech scene in Silicon Valley to work on Fetcher and travel around the world.