Last updated April 5, 2018 to include information about Walmart NOT complying with Pennsylvania’s new sales tax law
Amazon recently notified sellers that the marketplace would begin collecting and remitting sales tax on behalf of 3rd party sellers. This decision is the result of a new Pennsylvania “Marketplace Facilitator Law.” Previously Washington enacted a similar law, and Amazon begin collecting and remitting Washington sales tax for 3rd party sellers on January 1, 2018. You can read more about this in Amazon Seller Central here.
Etsy also announced that they would begin collecting sales tax from online sellers, however Walmart notified 3rd party sellers that because Pennsylvania’s new law does not apply to them they will not be collecting sales tax from online sellers.
This is a good news! However, just as we saw with Washington, it may turn out to be a bit of a mixed bag.
We always get a ton of questions when Amazon makes a big announcement like this, so let’s dig in to what this means:
Why is Amazon now collecting and remitting sales tax on behalf of 3rd party sellers in Pennsylvania?
Pennsylvania’s Marketplace Facilitator Law recently went into effect. Under this law, Amazon is considered a “marketplace” because they do the following:
- Advertise goods and services for sale in a physical or electronic forum.
- Collect payment from the purchaser on behalf of the seller either directly or indirectly.
- Remit payment back to the seller.
According to the new law, marketplaces that meet the above criteria are required to:
- Collect and remit sales tax on its own taxable sales; and
- Collect and remit sales tax on the taxable sales made through its forum by any marketplace seller using the forum.
In other words, Amazon has chosen to comply with Pennsylvania law and collect sales tax on behalf of 3rd party sellers using the platform.
Why did this happen now?
Pennsylvania’s new law specified that marketplaces were required to begin collecting sales tax on behalf of 3rd party sellers April 1, 2018.
Will other marketplaces also begin collecting sales tax on my behalf?
Etsy has announced that they will also being collecting sales tax on behalf of 3rd party sellers on April 1, 2018. Walmart announced that they will not collect Pennsylvania sales tax on behalf of 3rd party sellers.
Can I cancel my Pennsylvania sales tax permit?
According to the Pennsylvania Department of Revenue, online sellers who meet any of Pennsylvania’s sales tax nexus requirements still have nexus in the state. For example, storing inventory in an Amazon fulfillment center in Pennsylvania still gives you nexus, even though Amazon will now collect sales tax on your behalf. To sum it up, that means that your business could create sales tax nexus by selling on Amazon FBA, even though Amazon collects Pennsylvania sales tax on your behalf. This is a rather bizarre scenario, and it’s exactly what we are seeing in the state of Washington.
Also, if you sell on other channels like Shopify, BigCommerce, or Squarespace then you’d still be required to collect sales tax from Pennsylvania buyers on those channels if you have nexus in the state. (Yes, even if your nexus is via storing inventory in an Amazon fulfillment center.)
Now as to whether you should cancel your Pennsylvania sales tax permit, this depends entirely on your business scenario. We caught up with Mike Fleming from Peisner Johnson and asked him how they are advising their clients. He detailed several scenarios and how they are advising their clients:
1. Sellers who are already registered for a Pennsylvania sales tax permit and sell on other shopping carts and marketplaces
If you sell on Amazon, Etsy, etc. but also on other shopping carts and marketplaces that are not collecting sales tax on your behalf, Fleming advises remaining registered with Pennsylvania and continue to collect sales tax on those other channels. Example: If you sell via Amazon and then through Shopify, you should still collect Pennsylvania sales tax from your Shopify buyers. And you should still file a Pennsylvania sales tax return reporting both what you collected and what Amazon or another marketplace collected on your behalf.
2. High-volume sellers who only sell on Amazon and are already registered for a Pennsylvania sales tax permit OR who have past due sales tax liability in Pennsylvania
According to the state of Pennsylvania, Amazon 3rd party sellers are still responsible for any uncollected sales tax due before the marketplace facilitator law goes into effect on April 1, 2018. Fleming advises that high-volume sellers either register or remained registered to collect Pennsylvania sales tax, because it will now be simpler for the Pennsylvania Department of Revenue to find you and attempt to collect back taxes.
3. Small to medium-sized sellers who only sell on Amazon and are already registered for a Pennsylvania sales tax permit
Fleming advises these sellers to determine their past sales tax exposure in the state of Pennsylvania. For the most part, if you are already registered for a Pennsylvania sales tax permit, Fleming suggests remaining registered now that Pennsylvania will know that Amazon is collecting on your behalf.
4. Small to medium-sized sellers who only sell on Amazon, have nexus in Pennsylvania but have never registered for a Pennsylvania sales tax permit
In this case, Fleming advises sellers to look at their potential sales tax liability in Pennsylvania. While Amazon will become responsible for collecting Pennsylvania sales tax on your behalf after April 1, Pennsylvania still considers you, the 3rd party seller, on the hook for any sales tax due between the date you established Pennsylvania nexus and the April 1, 2018 date the marketplace facilitator law goes into effect. Fleming suggests determining your past due sales tax liability in Pennsylvania. You can do this using TaxJar. If getting caught by the state for past due sales tax, interest and penalties would harm your business, he suggests getting registered. But if the amount of past due sales tax, penalties and interest you would owe would be immaterial to your business, you may want to skip registering for a sales tax permit in Pennsylvania.
5. New sellers who sell on Amazon only and have nexus in Pennsylvania
In this scenario, Fleming advises that it doesn’t make much common sense for Amazon-only sellers to register for a Pennsylvania sales tax permit. While the Pennsylvania Department of Revenue states that sellers should register, this type of seller would face no penalty for not collecting because Amazon is responsible for collecting sales tax. However, if you plan to sell on other online shopping carts or marketplaces in the future, you may want to consider registering for a Pennsylvania sales tax permit, since inventory stored in an Amazon fulfillment center still creates Pennsylvania sales tax nexus.
Of course, every business’ sales tax liability is different, so we always recommend consulting with a vetted sales tax expert should you have questions about how to handle sales tax going forward in Pennsylvania.
I understand that Amazon will collect and remit sales tax on my behalf. Do I still have to file a Pennsylvania tax return?
See the five scenarios in the question above. If you still hold a Pennsylvania sales tax permit, you will still be required to file a Pennsylvania sales tax return by your assigned due date.
If you only sell on Amazon, Etsy, or other marketplaces that collect on your behalf, then filing a sales tax return will be fairly simple. You will just enter the amount Amazon or other marketplaces collected on your behalf as “non-taxable income.” (Pennsylvania has not yet released guidance on how exactly this will look on their tax form. Stay tuned for that.)
If you sell on Amazon, Etsy or other marketplaces that collect sales tax on your behalf and through other means (other shopping carts, brick and mortar business, etc.), then you are still required to collect sales tax from buyers via those other sales channels and enter them on your Pennsylvania sales tax filing as usual.
If you’d rather not deal with the hassle of breaking out your own sales vs. sales tax collected by marketplaces, TaxJar can AutoFile your Pennsylvania sales tax return for you.
What do I need to do in my Amazon Seller Central account to prepare for this change?
Fortunately, nothing. Amazon will take care of this change in your account.
Pennsylvania recently took an aggressive stance when it comes to sales tax from remote sellers. What else do I need to know?
Pennsylvania is serious about collecting sales on purchases made by in-state buyers. That’s whether the sales tax comes from out-of-state online sellers or from consumers in the state in the form of consumer use tax.
They recently passed a “notice and report law” requiring remote sellers who have no sales tax nexus in the state but who make more than $10,000 in gross sales in a calendar year in the state to choose one of the following options:
- Register for a Pennsylvania sales tax permit and collect sales tax from Pennsylvania buyers
- Comply with Pennsylvania’s notice and reporting requirements
Pennsylvania’s new notice and reporting requirements are particularly onerous in that they require sellers to do things like post specific notices on websites, send notices with each transaction, provide an annual tax form to their customers, and provide an annual report to the Pennsylvania Department of Revenue informing on customers who owe use tax.
And for more on notice and report laws in general, check out the webinar we did with sales tax expert Michael Fleming of Peisner Johnson.
This is a breaking news story, so we will continue to update this blog post as we learn more information. In the meantime, if you have any questions or something to say start the conversation in the comments!