If you’re an Amazon FBA ecommerce business — or you sell through other third party platforms such as Walmart or eBay Global Shipping — you’re all too aware of what a complicated mess sales tax has become.
How We Got in This Mess
Beginning a few years ago, most states have made efforts to cash in on the online shopping boom with revised tax laws that terminate out-of-state shipping exceptions. These moves were supported by the United States Supreme Court with its June 2018 ruling in favor of South Dakota in the case of South Dakota v. Wayfair.
Previously, physical presence in a state was one of the criteria for sellers’ tax nexus. The Supreme Court judgment disallows the necessity for physical presence, opening the way for states to require that all sellers — wherever they’re located — register, collect and remit sales tax on purchases shipped to the state.
Because each state’s tax code has its own variations — for example, the minimum dollar amount of sales or number of orders required for sellers to be subject to the law — compliance became a headache multiplied times however many states you have customers in.
The State of California in particular has been aggressively pursuing Amazon FBA sellers. After Amazon released its third party seller data to the state, letters were sent directly from the California tax authority to the sellers, demanding that they register to collect sales tax. (Other states, such as Massachusetts, North Carolina, New York, Pennsylvania and Rhode Island, have also obtained Amazon seller info. But they seem to be using the info only to verify that registered sellers are actually remitting all the tax they collect.)
The Good News
Recognizing that they have put an onerous burden on small businesses (thus possibly reducing their own tax revenues), more than 30 states have now passed Marketplace Facilitator Laws; and additional states have similar bills in the works.
Simply put, the Marketplace Facilitator Law throws the responsibility back on the platform that “facilitates” sales (Amazon, Walmart, eBay, etc.) to collect and remit sales tax on transactions that take place on their platform. According to the letter of the law, sellers are not required to register with the tax authority in those states.
As of October 2019, the states that DON’T have a Marketplace Facilitator Law are: Florida, Georgia, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, Ohio, Tennessee and Wisconsin.
The Not-So-Good News
Unfortunately, platforms may be able to “opt out” of complying with the Marketplace Facilitator Law if they meet the state’s non-collecting seller use tax reporting requirements.
Amazon, for example, only recognizes its collection requirements in these states (less than half of those that have a Marketplace Facilitator Law): District of Columbia, Alabama, Connecticut, Idaho, Iowa, Minnesota, Nebraska, New Jersey, New York, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Washington.
Note that California is not on that list. We understand they’re still sending out letters to Amazon third party sellers — without mentioning that the state does have a Marketplace Facilitator Law.
This is obviously a very fluid and evolving situation. Some states are already in the process of revising their Marketplace Facilitator Law to eliminate the “opt-out” for Amazon and other platforms.
We strongly suggest that you keep in touch with your sales tax consultant, as your responsibilities could be changing faster than the weather. Better yet, let Xendoo handle all the sales tax compliance hassles for you, from registering to reporting to remitting. You’ve got better things to think about — like growing your business!