Sales Tax 101

Sales Tax Nexus When You Sell on Multiple Platforms

by Mark Faggiano


Sales Tax Nexus

Today we’re looking at a common sales tax mistake that could end up costing you a chunk of money out of pocket. Here’s the scenario with our hypothetical seller Joe:

Joe sells on eBay and through his own website using a Magento shopping cart. Since Joe fulfills orders from his own garage, he only has sales tax nexus in his home state of Ohio. Joe does the right thing and registers for a sales tax permit in Ohio, and then sets eBay and his Magento shopping cart to collect sales tax from buyers in Ohio. Joe’s eCommerce business is rocking and rolling along in full sales tax compliance and life is good.

Then Joe decides to expand his business and sell on Amazon FBA. Suddenly, he has sales tax nexus in all the states where Amazon warehouses his goods. So he registers for a sales tax permits in some or all of the states where Amazon has a fulfillment center, sets up his Amazon FBA account to collect sales tax from buyers in all of those states, and continues selling.

Pop quiz: What did Joe forget?

Nexus from One Channel = Collect Sales Tax on All Channels

See what he did there? Joe forgot to set up his eBay and Magento shopping carts to collect sales tax from buyers in multiple states. Since Joe created a sales tax nexus connection to a state like Washington by selling on FBA, he now needs to charge sales tax to all of his buyers in that state. No matter from what platform he sells to them.

Example: Because Amazon is storing Joe’s inventory in the Sumner, WA fulfillment center, Joe now has sales tax nexus in Washington state. He sells a book to a buyer in Washington state through his own website. If he forgot to setup his Magento shopping cart to collect sales tax from Washington buyers, he will suddenly find himself out of sales tax compliance and owing Washington the sales tax from his book sale out of his own pocket. Or I suppose he could go back later, when he realizes his mistake, and ask the buyer for the sales tax. But I have a feeling that isn’t going to fly with Joe’s customer.

Summary

If you have sales tax nexus in a state, whatever the reason, then you must collect sales tax from all of your buyers in that state.

Do you have any questions about this common sales tax misconception? Start the conversation in the comments!

  • Brent

    Mark,

    I am practically Joe in this example. I just started selling on FBA. I have downloaded the reports from Amazon and find that I have inventory in every single one of the FBA states. I also sell on with Magento cart, on eBay and over the phone.

    I am wondering if it is possible to create a new LLC, that would be my Amazon sales only company call it “FBA123, LLC” , and keep my other channel sales separate. That way only FBA123, LLC would have nexus in those states and my original business would not.

    So I could legally not charge sales tax through Magento, eBay and phone orders since those are all shipped from my own warehouse in Oregon where there is no sales tax.

    Can you give me your thoughts on this or if anyone else has done this?

    Thanks

  • Glenn Bystrom

    I understand if I am a FBA seller I have nexus in those states where Amazon has my inventory. My question is do I also have nexus in those states that use a “click through” nexus standard even if I do not have inventory in those click through states.

  • Let me know if I’m misunderstanding the question. You sell on FBA but are you also using affiliates? If you are and you have an affiliate in a state with a click-thru nexus standard then yes, you’d have sales tax nexus there, too. Here’s more about click thru nexus: http://taxjar.wpengine.com/states-charge-sales-tax-click-thru-nexus/

  • Hi Brent,

    I don’t want to advise you wrong on this matter, especially since making the wrong move could have adverse consequences. I hope someone else will chime in if they do this. I also have a list of sales tax experts I trust who would all be happy to advise you: http://www.taxjar.com/sales-tax-accountant-directory/ I do hope this helps!

  • Sondra-Ryan Uzzell

    Thanks so much for this! I hope you can help me with my issue. We are located in MO and have an Ebay business (obviously the origin of Ebay inventory is MO). We also have an FBA business and I just completed the Sales/Use Tax app for PA, which is an origin-based state. So, to make sure I’m interpreting correctly, even though our Ebay inventory “origin” is in MO, we will still have to charge PA sales tax for Ebay sales in PA? I’m confused because it’s origin-based and our Ebay inventory is completely separate and does not originate in PA. Doesn’t sound like this matters though. If we have to charge for Ebay sales, it’s going to be crazy because there’s a long list of taxable vs. nontaxable items for PA and Ebay doesn’t catalog sales by tax codes like AZ….so I have to go through each Ebay sale to PA & figure out if it’s taxable or not. I can only set a fixed tax% charge on Ebay, so it sounds like I’d have to either refund PA customers that were charged tax on nontaxable Ebay items OR just not charge PA tax through Ebay and eat all the cost for taxable items! Can you help clarify? Thank you!

  • Annalisa

    I have a company in CT, and I have been contacted by a company located in KS (we didn’t solicit) to buy a large piece of machinery. We are hiring outside help to install it. As I understand it, we do not have to collect and pay sales tax in Kansas, is that correct?

    • Hi Annalisa, It doesn’t sound like you have sales tax nexus in Kansas, and that’s the only reason you would have to charge sales tax in Kansas. Sometimes hiring the installer can get tricky, but if you are hiring an outside company then it sounds like you are fine. That said, it’s always a good idea to check with a sales tax pro. Here’s a vetted list: http://www.taxjar.com/sales-tax-accountant-directory/

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