Editor’s note: This is a guest post by Jennifer Dunn, Chief of Content at TaxJar
At TaxJar, we talk to online sellers every single day. And we been noticing some sales tax myths crop up over and over again. Today I’m going to talk about the top 5 sales tax myths online sellers run into, and how to demystify them!
Myth #1: I don’t have to collect sales tax if I only sell online
This is the biggest myth out there. While less common than it was a few years ago, some sellers still think that if they work from home and only sell online then they are not required to collect sales tax. The fact of the matter is that if you sell taxable, tangible items (which includes most products) in a state that has sales tax – even if you only work from your kitchen table – then you are required to collect sales tax on your sales.
You can read more about getting started with sales tax in our Sales Tax 101 Guide.
Myth #2: If I paid sales tax on an item when I bought it, I don’t have to collect sales tax on that item when I resell it
Every time you sell a taxable item at retail to a buyer in a state where you are required to collect sales tax, you are required to collect sales tax on that sale. It’s easiest to think of sales tax as a tax on the transaction rather than a tax on the item. Just because you paid sales tax on that item in the past doesn’t mean that sales tax is no longer due.
Fortunately, you can avoid paying sales tax on items you intend to resell by presenting a resale certificate when you make your purchase. You can find out more about resale certificates here.
Myth #3: I didn’t make any sales in a state this month/quarter/year, so I don’t need to file a sales tax return
This myth can cost you money! Let’s say you have a sales tax filing due every month in your home state of South Carolina, but you took the month off and thus didn’t make any sales to South Carolina buyers. Even so, you should always file a sales tax return, even if it’s just to report zero sales. Failing to do so results in different penalties from different states, but these penalties can include anything from monetary penalties to having your sales tax permit canceled. So be sure to always file your sales tax return when you have a due date!
Myth #4: I’m an Amazon FBA Seller. If Amazon.com collects sales tax from buyers in a state, then I no longer have to collect sales tax from buyers in that state.
An alternate version of this myth is “If Amazon now collects sales tax from buyers in a state, I also have to collect sales tax from buyers in a state.”
The true story here is that what Amazon.com sells and what you, as an Amazon FBA seller sell are two totally separate things. Your business and Amazon.com are two entirely separate businesses. When you sign up for FBA, Amazon.com is very careful to say that you are responsible for your own sales tax collection, reporting, and filing. And under U.S. law, you – as the business owner – are only required to collect sales tax in states where you have sales tax nexus.
So, when it comes to collecting sales tax, only worry about where your business has sales tax nexus. Where and from which customers Amazon.com is collecting sales tax on their sales isn’t relevant in this case.
If this is confusing, I totally understand. You can read more about the difference between Amazon.com and your Amazon FBA business here.
Myth #5: I can use Amazon Inventory Placement to limit the number of states in which I’m required to collect sales tax
Amazon Inventory Placement is a program that allows you to – for a fee – limit the number of Amazon warehouses you ship your items to. It can be a smart move that allows for simpler logistics when you send items from your home or warehouse to Amazon. However, this does not stop Amazon from then transshipping your products to other fulfillment centers (and thus creating nexus in other states.) So while using Amazon Inventory Placement does save you work and hassle, it doesn’t generally limit the number of states in which your inventory is placed.
Do you have any other sales tax questions or myths you’d like to bust? Start the conversation in the comments!
TaxJar is a service that makes sales tax reporting and filing simple for more than 7,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
Meet the SellerEngine Team at the next Amazon focused event!
We’ll be exhibiting at the Amazon Professional Sellers Meetup & Workshop, April 27, 2017 in New York.