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Ep. 035 Keyword Podcast: Sales Tax Amnesty

August 16, 2017
Ep. 035 Keyword Podcast- Sales Tax Amnesty

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Amazon sellers are subject to sales tax liabilities and states are starting to crack down, sending audits to sellers for previously unpaid sales taxes. For sellers, this issue could mean a massive bill unexpectedly hits you. It’s money that has to be paid. Starting August 17 thru October 17, 2017, 19 states are granting sales tax amnesty for owed sales taxes as long as sellers get registered and pay sales taxes in the future.


James Thomson, co-founder of the PROSPER show and former Amazonian, helped get this amnesty program running. He talks with us about what it is and how sellers can get involved.


















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Show Notes: Ep. 035 Sales Tax Amnesty

Amazon sellers are subject to sales tax liabilities and states are starting to crack down, sending audits to sellers for previously unpaid sales taxes. For sellers, this issue could mean a massive bill unexpectedly hits you. It’s money that has to be paid. Starting August 17 thru October 17, 2017 19 states are granting sales tax amnesty for owed sales taxes as long as sellers get registered and pay sales taxes in the future.

James Thomson, co-founder of the PROSPER show and former Amazonian, helped get this amnesty program running. He talks with us about what it is and how sellers can get involved.

Helpful links:

https://www.prospershow.com/sales-tax-amnesty/

http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative

States are cracking down on owed sales tax. This summer Connecticut sent out hundreds of letters to Amazon FBA sellers requesting all sales information in the state. Several states have passed laws requiring sales tax be collected by Amazon. States are also auditing more sellers, sending notices requiring thousands of dollars to be paid to the states for unpaid sales taxes.

Sales taxes can’t be ignored by sellers anymore, but some states are saying that for a short time, they’ll ignore all your previously owed taxes.

“Sales tax amnesty is a way for sellers, specifically Amazon sellers, specifically FBA sellers to be able to address the sales tax liability that they have unknowingly accrued by putting their products into FBA,” says former Amazonian James Thomson.

James Thomson used to work at Amazon running Amazonservices.com. James is one of the co-founders of the PROSPER Show. It’s actually through a discussion with sellers and the Multistate Tax Commission at the PROSPER Show that the idea of the Sales Tax Amnesty Program came to be.

“I don’t mean to scare your listeners but the reality is, this is a big big issue that most sellers are not taking seriously or don’t even realize they need to take seriously,” James says.

Before we can really dig into the amnesty program – you need to understand how sales tax is calculated. It all depends on where you or your products are. It’s called sales tax nexus.

Let’s say you’re based in Wisconsin. Automatically, you will be required to pay sales tax to Wisconsin for all products sold in or shipped to Wisconsin.

As an example, let’s say you sell fidget spinners and you send some fidget spinners to a fulfillment center in California. You now have a presence in California. So all products sold in or shipped to anyone in California will be required for sales tax.

At this moment in our example, you are only required to pay sales tax in two states, California and Wisconsin. Those are the only two states where you have a physical presence.

Remember, your fidget spinners at the fulfillment center in California count as you having a physical presence there.

Let’s add in another scenario. We’ve sent fidget spinners to California and Amazon sends some of them to texas. You now have sales tax nexus in Texas requiring sales tax for any products sold to someone in Texas.

“Bottom line you ship your products into FBA, you may ship it to three or four states,” says James, “Amazon then turns around and ships your product at their own cost to a number of Amazon warehouses and you’re in a situation where you could find yourself with sales tax responsibilities in 23, 24 different states just because Amazon has been moving your inventory around.”

So you need to know where your inventory is. Amazon will tell you where you inventory is that day, but what about a week earlier? A month earlier? A year earlier? You may have missed that you had product in a state and any following sales in that state will trigger the need to pay sales tax.

“We’ve done some analysis and we’re seeing compliance rates well under 10% and when you look at the amount of money that somebody can accumulate in sales tax,” says James, “If you’re doing a net 15% profit every year and you’re not paying on average say 5% sales tax on every dollar you sell within three years you owe more money than you’re going to bring in this year. That’s really scary.”

Sales tax doesn’t have to be and shouldn’t be an added expense for sellers. Once you register in a state, you can have Amazon collect the sales tax for you. Inside of Seller Central, go to “Settings”, then “Tax Settings” and you can set up to have Amazon collect the sales taxes from customers. Then you turn around and send the money owed to the corresponding state. There’s plenty of tax remittance companies that can help you with that part.

Not paying the owed sales tax can hurt your seller account in a couple different ways:

  1. You could be audited and suddenly hit with a large bill.
  2. States could put liens on your business and you.
  3. If tax liens aren’t addressed, it will prevent you from selling your seller account in the future.

The Multistate Tax Commission has 19 states that have agreed to give Amazon sellers amnesty for past owed taxes. Some states are only doing partially amnesty, but the majority are giving full forgiveness, as long as sellers register and get set up to collect sales tax in the future.

“We did the math and there’s literally billions of dollars every year that go uncollected and unpaid by FBA sellers so if you’re a particular state with any decent sales volume product being shipped by FBA sellers back into your state there’s a lot of money being left on the table,” James says.

When it comes to sales tax you’re likely thinking of the big states; California, New York, Florida and Texas. California and New York are not part of the amnesty program but Florida and Texas are and both are offering full amnesty for past sales taxes.

There are some states like Tennessee that don’t require sales tax be paid until you’ve sold over a certain amount. In Tennessee that amount is $4,800

No matter how big the state is when it comes to sales taxes, they want to have the sales taxes they’re owed. .

“It’s actually millions of dollars that are involved with sales that occur remotely,” says John Valentine, Commission Chair for the Multistate Tax Commission.

Now John tells me the Commission wants to have sellers enroll in the program. It’s a better situation for the states and sellers. Getting set up in the amnesty program prevents states from possibly auditing you later.

“Chasing the vendors or chasing the customers who bought from the vendor, is a very inefficient way and kind of harsh,” John says.

“States want to get access to that money because a few hundred million dollars here or there goes a long way to paying for schools and roads and so on and so forth,” James says.

As Amazon continues to grow. They’re building more and more fulfillment centers in new states and that means new places where you could have inventory in the future, including several states that are on the amnesty list.

If you’re planning to be successful selling on Amazon, states will want to make sure you’re paying what they’re owed. This amnesty program is a good way to get set-up with states to ensure that your future growth isn’t halted by an audit.

“I have colleagues who have paid seven figure penalties to specific states when they discovered that yes, this sales tax issue does affect them and yes, they are responsible for paying the tax,” says James, “You can’t just say oh I didn’t know the law.”

States are getting more aggressive about getting information about the top sellers and auditing them. That trend won’t change unless sellers start complying on their own. If you are audited in the future and you can’t pay it, you can’t claim bankruptcy to get out of it and liens can be put on you personally including things like your home.

“Every state has to make a decision do they want to continue down a path to try and identify and audit sellers or do they want to give sellers the opportunity to come clean and allow states to immediately identify and start collecting the sales tax from these sales,” James says.

Each state has its own registration process and you need to be prepared to dedicate time for registering. The process can be frustrating If registering for sales tax seems daunting, there’s companies out there like Sales Tax Key that can do it for you. They can help you get set up in the amnesty program and registered in other states so that you can start collecting sales tax from Amazon sales. You can find them at salestaxkey.com

The amnesty program runs from August 17 to October 17, so you have two months.Start working on this now. If you wait too long to start then you might be too involved in holiday prep to get it done in time.

Big thanks to James Thomson for telling us about this program. James has also recently written a book called “The Amazon Marketplace Dilemma.” It’s a book to help companies control their brands on the Amazon Marketplace.

 

Here’s a link to James’ Book: https://www.amazon.com/Amazon-Marketplace-Dilemma-Executives-Maintaining/dp/0998484601/ref=sr_1_1?ie=UTF8&qid=1502858563&sr=8-1&keywords=amazon+marketplace+dilemma

 

Here’s how to contact James:  https://www.prospershow.com/contact-us/

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