E-commerce is the fastest growing type of business in the entire world, and Amazon.com dominates the online buying experience here in the U.S.
In fact, 70% of all households buy something on Amazon.com in the last 90 days, and 60% of all households have Amazon Prime membership.
With such a limitless way to reach new consumers and sell your products, I have more and more clients who are jumping into the Amazon commerce – and making a whole lot of money.
However, there are several pitfalls I see for Amazon sellers from an accounting and taxation standpoint, and I wanted to touch upon one of those today: sales tax.
Yes, you need to collect sales tax when you sell products on Amazon.com, and failure to do so, report properly, and settle up with the state’s tax board can result in some hefty fines.
Of course, the subject of taxation for e-commerce businesses can’t be discussed adequately in just one email, so I encourage you to contact me so we can delve into your unique situation and brand.
But we do know that when you sell and distribute goods within the U.S., you’re expected to collect and pay sales tax. To complicate matters exponentially, each state has its own local tax rate or state tax that needs to be applied – and some states even have both!
The good news is that Amazon seller platform does help with collecting sales tax and basic accounting. But trusting Amazon alone to check all of your sales tax boxes is a recipe for disaster.
In the early days of e-commerce, a business only needed to register to pay state or local taxes in the state where they had a physical presence or their address on file. But that’s evolved (and become more complex), especially with the advent of Amazon’s FBA (Fulfillment by Amazon) warehousing and distribution programs.
Now, you need to establish what is called a “nexus” – the ability to collect tax in that state. States may even be able to charge sales tax on remote sales even if you have no presence there, which is called an economic nexus.
To make it even more complicated, you actually need to register to charge sales tax with each state you’ll be selling in/to. If you don’t obtain that permit, the state(s) will deem that you’re doing business illegally.
Remember when I mentioned fines earlier? Getting your sales tax obligations wrong can negate all of your hard work – and profit. For reference, those fines could range from 10% in California (going all the way back to your 2012 sales) to 39% in Washington! Florida can go all the way back to the inception of your business to collect taxes and penalties! And what is even worse, there is no statute of limitation in Florida for sales taxes.
If you’re serious about e-commerce and selling on Amazon.com or other platforms like Shopify, please call my office at 954-888-6941 ext. 1 so we can make sure you’re set up to succeed!