Updated March 20, 2018 to explain Washington’s new filing form for 3rd party marketplace sellers
Last month, Amazon notified sellers that they would collect Washington sales tax on behalf of all 3rd party sellers starting January 1, 2018. While this is excellent news that will make an Amazon FBA seller’s life easier, sales tax is rarely simple. To find out what happens next, we emailed with a representative from the Washington Department of Revenue (to get answers in writing) and held a panel of sales tax experts from across the country.
You can watch the expert panel here:
And here are answers to the most common questions sellers have asked us since Amazon made the big announcement:
Why will Amazon begin collecting sales tax on behalf of 3rd party sellers in Washington starting January 1, 2018?
Washington passed a “marketplace facilitator law” stating that online marketplaces that meet certain criteria (which you can read about on the Washington Department of Revenue website), are required to collect sales tax on behalf of any 3rd party sellers selling via the marketplace.
According to sales tax attorney Mike Dillon of Dillon Tax Consulting, the letter of the new marketplace facilitator law does not actually require Amazon to collect sales tax on behalf of Amazon FBA sellers. The fact that Amazon is collecting on behalf of all third-party sellers is due to an agreement between Amazon and Washington.
Do 3rd party Amazon sellers who previously had nexus in Washington still have nexus in Washington?
Yes. And this is one of the most confusing parts of this change. According to Washington’s tax law, sellers with inventory stored in the state have sales tax nexus in the state. This has not changed, even though Amazon is now collecting sales tax on behalf of 3rd party sellers.
So, what does that mean? If you make sales via other online shopping carts and marketplaces, like eBay, Shopify, Walmart, etc. then you are still required to collect sales tax from Washington buyers.
Do 3rd party Amazon sellers who still have nexus in Washington still need to pay Washington’s Business & Occupation (B&O) tax?
In almost all cases, yes. You are still required to pay Washington’s Business & Occupation (B&O) tax even if you only sell on Amazon and are no longer required to collect sales tax from your customers. Current Washington sales tax filers will note that you file and pay your B&O tax along with your Washington sales tax filing. According to sales tax expert Mike Fleming of Peisner Johnson, B&O tax is roughly half of one percent of your gross sales into Washington.
Note: There is one very rare exception here. If you are sell on Amazon but not FBA, have no inventory or other nexus in Washington, and exceed the $10,000 economic nexus threshold in Washington, you are still required to file Washington B&O form, but you can take a credit for “no local activity” to remove the expectation that a B&O is due. This is highly confusing, so we always recommend you contact the Washington Department of Revenue if you have questions about whether or not B&O is due. Their best phone number can be found here.
I’m currently registered and collecting sales tax in Washington. Should I cancel my Washington sales tax permit?
No. If you have nexus in Washington, you are still required to file sales tax returns and file & pay B&O tax by your assigned due date. (Note: You file and pay B&O tax on the same form or in the same online filing as your sales tax return.)
Am I still required to file a Washington sales tax return?
Yes, even if you only sell on Amazon and Amazon collects sales tax from all of your customers, you are required to file a Washington sales tax return. One thing that will change is that instead of breaking out your Washington local sales tax by city, county, etc. you will claim a deduction for the sales tax that Amazon (or another marketplace) collected on your behalf.
This means you will still need to keep track of the sales tax that Amazon collects on your behalf, though you will now take this amount as a deduction on your Washington return. And you will still need to file and pay your Washington Business & Occupation (B&O) tax.
If you sell on other platforms, like eBay, Shopify, etc., you will still need to break down how much sales tax you collected from buyers via those channels by city, county and other local taxing jurisdiction.
Here’s what the Washington Department of Revenue had to say to this question:
“If your remote seller clients make retail sales through a marketplace facilitator, they should continue to report the income on their excise tax return under the retailing B&O tax line and retail sales tax line – taking an “other” deduction under retail sales tax and labeling it ‘sales tax remitted by third party.’ (See important update on this below.) For sales through their own website, if they met the receipts threshold in RCW 82.08.053, they would need to make the election to collect sales tax or comply with the use tax notice and reporting requirements.”
Important Update: Starting March 19th, Washington has changed up their sales tax filing form to make filing simpler for marketplace sellers. Now, when filing your Washington sales and use tax return, Washington tax filers should choose the option “Retail Sales Tax Collected by Facilitator” and then enter the amount of sales tax that a marketplace collected on your behalf in the “RST Collected by Facilitator” box. (In this case, “Facilitator” is the marketplace that collects sales tax on your behalf.)
What do I need to do in my Amazon Seller Central account to prepare for this change?
Amazon recently made some changes to their instructions page for online sellers. The new instructions say that Amazon 3rd party sellers are not required to make any changes in their Seller Central account to accommodate Amazon now collecting Washington sales tax on their behalf.
I have sales tax nexus in Washington (because my inventory is stored in an Amazon fulfillment center there), but I have never registered for a sales tax permit or collected sales tax in Washington. Does this get me off the hook for sales tax?
No. According to an email from the Washington Department of Revenue:
“If the business is located in Washington they have nexus and are required to be registered with the Department. For out of state businesses without a physical presence see this web page.”
As attorney Mike Dillon says in the above expert round table video, in this case, you are still liable to register for a Washington sales tax permit, file a combined Washington sales tax and B&O tax return, and you may be liable for any uncollected sales since the date you established nexus in Washington.
However, you will not need to set up sales tax collection in your Amazon Seller Central account or collect sales tax from Washington buyers via Amazon. You will, though, be responsible for collecting sales tax from sales made to buyers in Washington via your other sales channels.
Another note: As sales tax expert Mike Fleming mentioned in the video above, it’s always a wise idea to consider your “materiality” when making a decision about whether to comply with sales tax in a state.
For example, perhaps you do have inventory stored in Washington but you only make a handful of sales to Washington buyers per year. Should Washington “catch” you and audit you, you may only owe them a few hundred dollars in past due sales tax, penalties and interest. This fine would not put you out of business. In that case, depending on our individual business scenario, it may not be realistic for you to register for a Washington sales tax permit. You can read more about materiality and when to register for a sales tax permit here.
If you are unsure about your exposure to past due sales tax in a state, panelist and sales tax expert Drew Simek of Simek Tax recommends assessing how much past due sales tax you should owe in a state. (You can assess your past due sales tax liability by signing up for a TaxJar account and connecting to the shopping carts and marketplaces on which you sell.) From there, you can work with your sales tax expert to make an educated decision about when to register for a sales tax permit and become compliant.
I’m just getting started with FBA and/or sales tax compliance. Does this mean I can ignore Washington when registering for sales tax permits?
No. Just like in the question above, you should still consider Washington when making decision about when to register for sales tax permits. (See the answer above for more information.)
Washington is known for being particularly aggressive when pursuing out-of-state sellers for historical sales tax due. Will Washington continue to take this course?
According to the Washington Department of Revenue, the answer is “yes.”
Will any other online marketplaces begin collecting sales tax on behalf of 3rd party sellers in Washington?
As of February 7, 2018 both Walmart and Etsy are also complying with this law. You can read about what Etsy collecting Washington sales tax means for sellers here, and what Walmart collecting Washington sales tax means for sellers here. If you hear of any other marketplaces complying, please let us know in the comments.
According to sales tax expert Drew Simek, the marketplace would itself have to have nexus in the state of Washington in order to be required to comply.
What if I’m based outside the U.S. Does all this still apply to me?
According to sales tax expert Mike Fleming, states view international sellers just the same as they view out-of-state sellers. So, if you are an Amazon FBA seller based abroad, you would still be required to file your Washington sales tax and B&O tax return just like any other seller after January 1, 2018.
You can see our article here for more info about sales tax compliance as an international Amazon FBA seller.
Will any other states require that Amazon collect sales tax on behalf of 3rd party sellers?
The answer is a definite “most likely.” According to Drew Simek, each state’s laws are different and it’s unclear whether a law like this will be as beneficial for other states, simply because in Washington’s case Amazon went a step beyond the letter of the law to collect sales tax on behalf of FBA sellers.
Mike Fleming added that different states also have different relationships with Amazon. Washington made this process easy on Amazon, but other states – such as South Carolina – are taking a different tactic. South Carolina is pursuing a lawsuit against Amazon, holding the retailer accountable for all past due sales tax.
Can I still AutoFile my sales tax returns with TaxJar?
Yes. Starting with that taxable period that begins January 1, 2018, TaxJar AutoFile will file your sales tax return in compliance with how Washington expects to see it. This means we’ll report your gross Amazon sales, but deduct that amount as part of your “other deductions.” We will also continue to file and remit your Washington Business & Occupation (B&O) tax as part of your Washington sales tax filing.
What is “economic nexus” in Washington?
First, economic nexus does not apply to most sellers who will be reading this post, though we do receive questions about it and wanted to include it here.
According to Washington’s tax law, any seller who does not otherwise have nexus in the state still has nexus and is required to collect sales tax from buyers in Washington if their gross receipts in Washington meet one or both of these criteria:
- More than $267,000 of gross receipts sourced or attributed to Washington
- At least 25 percent of total yearly gross receipts sourced or attributed to Washington
In other words, some sellers may be liable to collect sales tax from Washington buyers (according to Washington’s tax code) even if they do not have a nexus such as inventory stored in Washington. This law went into effect July 1, 2017. You can read more about economic nexus in Washington here.
What is Washington’s “notice and report” requirement?
This is another question we often hear, though it does not expressly have to do with Amazon collecting Washington sales tax on behalf of 3rd party sellers.
Beginning January 1, 2018, Washington’s tax law states that online sellers who make sales into Washington but do not otherwise have any obligation to collect sales tax in Washington (i.e. nexus) are required to either elect to collect Washington sales tax, or comply with “notice and reporting requirements.”
The provision applies to any retailers or market facilitators who gross at least $10,000 in the current or proceeding calendar year. These sellers are required to provide notices to their buyers that use tax is due on each sale, and provide year end use tax due notices to both buyers and the state of Washington. You can read much more about Washington’s notice and report requirement in this article by the Sales Tax Institute.
As attorney Mike Dillon mentions in the expert roundtable video above, these “notice and reporting” requirements are intentionally onerous for sellers. The true goal of these requirements is to persuade sellers with no nexus in Washington that it’s simpler to collect sales tax than to comply with these burdensome paperwork requests.
Still have questions about Amazon collecting sales tax in Washington?
We recommend contacting one of these sales tax experts:
- Lauren Stinson of Windward Tax
- Mike Dillon Dillon Tax Consulting
- Mike Fleming of Peisner Johnson
- Drew Simek of Simek Tax
If you have questions about TaxJar or filing Washington sales tax, send us an email at email@example.com, or start the conversation in the comments!