State sales tax collection is one of the biggest issues facing sellers right now. There’s a lot of choices you are forced to make. If you choose to collect and pay sales tax, you have to figure out which states you owe taxes, collect it and submit it. Sounds easy, but it’s not. It’s not easy to figure out which states you have or had inventory in. Your other decision is to not collect it, but then you run the risk of being audited and sent a bill for thousands of back owed taxes.
There’s a lot going on with the sales tax issue and that’s what we’re going to go over in the episode. Updates to the discussion, both happening by the White House and state governments. Plus some states are just collecting the tax and there’s a new group working to help champion the issues for sellers.
“Do I need an attorney for this? Or do I just need to line up with the right CPA? Those are big, big decisions to make and it could impact the life of your business. You want to make sure you don’t do them hastily,” says former Amazonian Chris McCabe.
Chris used work for Amazon, suspending accounts. Now he works helping sellers avoid suspension. He’s also been at the forefront of the state sales tax issue.
Another person who has been putting himself at the forefront is President Donald Trump.
“He’s skilled marshalling the support from certain areas of the public especially on economic issues and if this becomes a national issue and effects the economics of all these various states Departments of Revenue coming after all these individual third-party marketplaces for taxes simply because they’ve got FBA items in a state they’ve never even seen, I think that can quickly become a media storm to his advantage,” Trump says.
One of the President’s most recent tweets on the subject says:
“States and Cities throughout our country are being cheated and treated so badly by online retailers. Very unfair to traditional tax paying stores.”
The President’s claim that cities and states are being cheated, is somewhat true. States are missing out on millions of revenue dollars that could be used to update roads, schools, you name it. The big questions here is who should be collecting and paying the taxes? That’s been the debate for years. Amazon says the Marketplace is just that, a Marketplace and it’s up to sellers to collect and pay the taxes. Many sellers and experts, including Chris, feel that that places an undue burden on sellers.
“A lot of these sellers are margin sellers. They’re not even squeaking out that much of a profit per month and they’re probably making some business changes as well due to competition, having to lower their prices. Lots of rising costs, elsewhere in their business, lots of different factors,” Chris says.
Now collecting and paying sales tax doesn’t technically cost sellers more money but it does take a lot of time and managing. Sellers have to figure out which states have or had their inventory and then register with those states to collect all future sales taxes for products sold and shipped to those states. Amazon does make it easy for sellers to opt-in to collect the sales tax – through seller central. There are a couple different companies that can then help you pay the sales tax.
I’ll be honest, don’t know what the right solution is here, but there’s a lot of things in play that could resolve the issue once and for all.
First, the state of Washington started collecting state sales tax for products sold on the Amazon Marketplace directly from Amazon beginning this year. Pennsylvania has now followed suit, they started requiring Amazon to collect the taxes from Marketplace orders starting in April.
The next thing, South Carolina has sued Amazon for back taxes owed from Marketplace transactions and requested they collect and pay future sales tax. That’s still being fought out.
‘If they had scored an immediate victory then I think states would follow suit in not chasing the smaller marketplace sellers around much anymore and focusing on the client that’s already cited in their state whose responsibility it is to collect these sales tax,” Chris says.
The next thing to pay attention to is the U.S. Supreme Court. On April 17, just a few days ago, they heard the first arguments in South Dakota v. Wayfair. South Dakota is arguing that they and all other states are missing out on millions of tax dollars from online sales. This issue would require online retailers collect and pay sales taxes for all orders. What’s unclear is first, how the Supreme Court will rule and will Amazon be required to collect the taxes or will they continue to push that burden on the sellers.
Remember, Amazon views them as only supplying the Marketplace. That definition means the sales tax isn’t up to them.
“Maybe they will understand it makes more sense for them since they’re already set up in all 50 states to use their resources to administer sales tax as opposed to pushing that burden which is an undue burden really on the shoulders of all these small businesses,” Chris says.
Now what is happening is states are following each other and sending out audits and they’re getting seller information from Amazon.
“That’s the trend I’m hopeful that that won’t be the trend because they’ll be watching what’s going on in the courts and they won’t spend a lot of time chasing after sellers knowing that it’s eventually going the other direction and Amazon will eventually capitulate,” Chris says.
If you haven’t received an audit. Don’t count yourself lucky and assume you won’t. States are getting more aggressive. There are a couple things you want to keep in mind if you do receive an audit. You need to consult an attorney. Most sellers can’t pay the amount that they’re owed right away. You need someone on your team that can help you negotiate with the state.
“Not everyone’s situation is exactly the same. It also depends on what your relationship, what your other business relationships are on Amazon in these different states,” Chris says
Owed sales tax all relates back where your inventory is. If you have inventory in Georgia, you have to collect and pay all sales taxes for orders sent to Georgia. If you’ve never had inventory in Georgia, sales taxes for orders sent there aren’t collected.
This issue of inventory relates back to a Supreme Court decision from almost thirty years, Quill v. North Dakota. Depending on how the Supreme Court rules this summer, it could overturn that ruling.
There’s also a new organization, the Online Merchant Guild, that has been created to champion and advocate for sellers. Their first agenda item is sales tax resolution.
Again with sales tax, you have to decide if you’re going to collect and pay the sales tax or wait for a resolution and possibly an audit. This likely will continue to be an issue that will drag on and as a seller, you need to be as informed as possible to make the right decisions for your business.
“I don’t think it will be resolved this calendar year, the way I’m viewing it now,” Chris says.
Thanks to Chris McCabe for joining us to discuss this issue and you can expect to hear from him more on this issue in the near future. We’re going to be getting together for another episode to discuss with a lawyer what might come from the Supreme Court. In the meantime, you can reach out to Chris at ecommercechris.com.