Q4 is here, and that means your online holiday sales are already ramping up. During all the craziness, the last thing you need is to have to stop and deal with an issue like not collecting the right amount of sales tax. Luckily, there are a few things you can do now to ensure that sales tax isn’t a problem during the holiday rush.
Ensure You’re Collecting Sales Tax from Buyers in your Nexus States
In the United States, you are only required to collect sales tax in states where you have sales tax nexus. Nexus is just a fancy way of saying a “significant presence” in a state. If you live in the U.S., you will always have sales tax nexus in your home state, but other factors can create nexus for you in other states, too. Here’s a list of business activities that commonly create sales tax nexus:
• A location – an office, warehouse, store, or other physical place of business
• Personnel – an employee, contractor, salesperson, installer or other person doing work for your business
• Inventory – Most states consider storing inventory in the state to cause nexus even if you have no other place of business or personnel
• Affiliates – Someone who advertises your products in exchange for a cut of the profits creates nexus in many states
• A drop shipping relationship – If you have a 3rd party ship to your buyers, you may create nexus
• Selling products at a tradeshow or other event – Some states consider you to have nexus even if you only sell there temporarily
If you sell on Amazon FBA, you have nexus in states where your inventory is stored. This gets tricky when Amazon moves your inventory around. Plus, Amazon just opened up two new warehouses in two new states – Colorado and Michigan. To find out where your inventory is stored and where you have nexus, you can look at your Inventory Event Detail report in Seller Central or get that info all in one place from a sales tax software.
Ensure You’re Collecting Sales Tax on the Right Products
In the U.S., most “tangible” products – like furniture, toys, etc. are taxable. However, some states have declared some necessities – like clothing, medical supplies, groceries and textbooks, among other things – are not taxable.
For example, clothing is not taxable in Pennsylvania, textbooks are not taxable in Minnesota and groceries are not taxable in most states. However, it’s not always that simple. In New York, clothing is non-taxable… as long as it’s priced at $110 or less. And in Illinois, groceries are taxable, but only at a reduced rate of 1%.
Fortunately, Amazon sales tax collection engine makes it simple for online sellers to collect (and not collect) sales tax on the right products. Just be sure you enter product tax codes when setting up Amazon sales tax collection in Seller Central.
Here’s a video on setting up Amazon sales tax collection and product tax codes in Seller Central:
Double Check Sales Tax on Shipping
Some U.S. states consider shipping a taxable part of a sale and say that sellers should collect sales tax on shipping charges. Other U.S. states disagree.
You sell a dining room table to a buyer for $500 + $50 in shipping charges. In states that consider shipping charges taxable, you’d charge your buyer sales tax on the total price of $550. But in states that do not consider shipping taxable, you’d only charge your buyer sales tax on the $500 price of the dining room table, and not on the $50 shipping charge.
Amazon also allows you to determine whether you want to charge sales tax on shipping in a state. To help, you can see a list of states where shipping is taxable here.
Double Check Sales Tax on Gift Wrapping
Similar to shipping, gift wrapping is considered taxable by some states and non-taxable by other states. And just like with shipping, Amazon allows you to choose in your Seller Central tax settings whether to collect sales tax on gift wrapping. To help, you can see a list of states where gift wrapping is taxable here.
I hope these four tips have helped you prepare your business’s sales tax for Q4. For a whole lot more about Amazon sales tax (FBA), check out our Sales Tax Guide for Amazon FBA Sellers or just ask in the comments!
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