Sales tax

Reporting sales tax

Ben M. Looking for a cofounder to strategize a new product for online retail

February 22nd, 2019

I'm interested to know how the state sales tax requirements have changed and what's currently needed to be sales tax compliant. If, for example, you're drop shipping to all of the USA. In the past, it was only necessary to collect and remit sales tax for ship to orders in the state where you have a nexus or physical location. Is this a concern for anyone else?

Also, if you sell items on Amazon, does Amazon take care of reporting the sales tax on an order?

Paul Garcia marketing exec & business advisor

March 4th, 2019

@Dane is correct. And I'll point out too that if you're already doing business and haven't been collecting sales tax, you may need to set aside funds to pay for previously uncollected taxes, for who-knows how many prior years. The obligation for buyers to pay sales tax hasn't really changed. What's changed is that government is finally doing something about the fact that individuals don't initiate sales tax payments themselves in their home state for purchases made online, even though they have always been obligated to do so.

I haven't read the legal opinion, but expect that the reasoning to push it back to point-of-sale is that online merchants knew buyers were scoff-laws on paying the sales tax, and did nothing about it, so are complicit in the evasion.

Fortunately for me, my online sales were for a wholesale business which passes the burden further down the lane to the retailer.

Paul Garcia marketing exec & business advisor

Last updated on March 8th, 2019

Yes, unfortunately it does mean registering for a sales & use tax account in every state in which you do business. Most small companies though would likely not register for a state if they have no sales in that state, until they have their first sale in that state. Many states will allow electronic filings, and some accounting software makes it fairly easy to file the state tax forms when setup properly (and paying for the state modules) like Quicken, Peachtree, etc. So once connected, you won't have to think about where what dollars go for tax. The software will do it for you.

There will never be (never say never, right?) a national sales tax because it is a state power to regulate tax for commerce in its territory. Really this is a software solution, and as the law imposes more aggressive prosecution, software will quickly catch up to the business owners' needs. A platform does not indemnify your individual company's obligations, because you're still responsible for the platform's compliance, as the merchant.

It's not a change. Be certain it's not a change. The sales tax has always applied. The only thing that is different is enforcement since merchants have been neglectful in pushing customers to file sales tax locally. It's a little bit like waiters who only report their credit card tips and not cash tips. They're obligated to report 100%, but because they think cash is hard to trace, they commit fraud by not claiming it as income. The IRS doesn't pursue most because it costs more to audit them than would be recovered in unpaid taxes. But lack of enforcement does not waive the obligation.

It already happened a few years ago with merchants accepting credit card payments. The IRS now receives reports of all dollar amounts charged to customers by merchants, directly from the card processing companies. So if you don't report at least as much income the credit card company says you processed, it's a flag that you're hiding income. Before that you were on your honor to report card charges processed and if the numbers you filed didn't match the actual, there was no way for the IRS to check.

Here are the steps to file sales & use tax registration forms for every state.

Dane Madsen Organizational and Operational Strategy Consultant

February 22nd, 2019

The SCOTUS Wayfair decision makes it clear you must plan on/already be collecting tax. AMZN does offer this service. You can get it from others if you are not an AMZN seller. It varies by state - I recall SD has a $100 K or 200 transactions, but MN has a $100 K and 10 transaction threshold. Get your tax people involved.

The good news is that it hits most everyone so that "no sales tax" is not longer a disadvantage.

Ben M. Looking for a cofounder to strategize a new product for online retail

February 23rd, 2019

Thanks Dane Madsen. I'll keep that in mind and contact a tax professional.

Ben M. Looking for a cofounder to strategize a new product for online retail

March 8th, 2019

Thanks, Paul. I'll still need to find out how to register with various states for sales tax. I wonder if it's necessary to get a separate tax ID number and record quarterly earnings, like in my home state of CT. It seems that every state may be different on the threshold and requirements. A possible way around this is to only sell on a platform, but that substantially limits all the benefits of having your own site, such as customer acquisition. I heard that at one time the Fed was considering one unified sales tax rate for the U.S. This would make it easier. Overall, I think this change will impact a lot of startups adversely.

Ben M. Looking for a cofounder to strategize a new product for online retail

March 10th, 2019

Thanks again @Paul. I really appreciate the advice. I'll check with Taxjar