I research about once a week for updates on the entire sales-type tax situation. Vertex has been an excellent source, but that hasn’t been updated since Oct 4, 2019, so I think Vertex is losing interest. I go all the way to reading the legislation, the committee reports, local newspapers online. For Georgia, I got a tip and followed it up. Florida has been an ongoing adventure since that state legislature failed to get something done in 2019. I spend too much time on this subject, but I try to share with all sellers so that others may do something else and just rely on my posts (always double-check if you care about what I’ve said).
I have to qualify the knowledge base (see below) before I can comfortably answer what appeared to be a simple question. If a seller does not have FBA inventory ever in that state and does not exceed its small seller threshold, then sales tax registration would not be required. But that is not the whole picture.
You are blending together two pieces of the sales tax and overall tax issue. A seller, person, company/entity, either does or does not have nexus in each jurisdiction. The Wayfair case put forth a set of waves involving “economic nexus” where states (possibly counties, cities, and others) could say a party has nexus without a physical presence. The commonly used $100,000 in gross sales or 200 transactions “threshold” is there to carve out an exception for “small sellers.” Some states want to count online marketplace sales, others do not. Several states have (wisely, I suggest) avoided the transaction threshold because it could fail the intent by having a seller of 200 items costing $5 each in a given year, or $1,000 in gross annual sales, above the “small seller exception.” The compliance burden in many of these states easily exceeds several thousand dollars per year, including registration and renewals.
But there are other forms of nexus. The biggest one FBA sellers need to consider is the two-part concept advanced most notably by California starting in fall of 2017 (when CDTFA was formed) called physical nexus. Physical nexus was always there as the most basic nexus, having a physical operation in a state, but it had only been applied when a seller contracted directly with a physical fulfillment center. California decided that a seller using an Amazon warehouse in that state established nexus for all sellers, no matter how little or infrequent the connection, and no matter how the inventory got to be in California. Many posters will say horrible things about this theory, and I agree in part, but this has merit once that inventory exceeds a clearly stated, substantial, threshold (and that last part is lacking almost everywhere).
Then there is marketplace facilitator tax collection, which is an extension of this subject. That is a state requirement for marketplaces that exceed a threshold (usually the same as Economic Nexus) to charge, file, and remit sales-type taxes on all sales occurring on that marketplace. Those laws may stand alone or be part of a larger law/regulation addressing nexus, taxes, and thresholds.
Applying these concepts to California, Amazon created its own physical nexus in 2012 when it opened its first physical facility in that state, which was an FBA warehouse. Around that time and by agreement with California, Amazon started charging/filing/remitting sales taxes on all of its direct sales to California residents. Fast forward to fall 2017 when California created CDTFA as part of reorganizing tax administration. Its original and still current director said that that physical nexus tax collection that started by agreement with Amazon in 2012 should have also extended to FBA sellers with any item in a CA FBA warehouse. Then, to capture sellers not in the physical nexus theory, or as a backstop in case it proves unsuccessful, CDTFA published economic nexus in late 2018 that would go into effect April 1, 2019. That got altered and eventually legislation established a $500,000 threshold plus marketplace facilitator tax collection. These are not the only theories, but they are the primary ones today.
If a seller exceeds a threshold AND sells outside of collecting marketplaces, counting marketplace sales in some but excluding them in others, some states require registration, filing, and in some cases payment. Further, some states want registration if a threshold is exceeded whether or not there are sales outside marketplaces. And those thresholds keep getting smaller; look at Georgia and Washington starting January 1, 2020.
But, this is all child’s play compared to what is coming in the second wave. Excise/Privilege taxes, corporate taxes, possibly even personal taxes for some. State of Washington already wants B&O Excise tax for any seller with any form of nexus. The “ROT” issue in Illinois is a messy extension of that concept. And there are others. I only say this to tell sellers that this is getting tremendously more complicated and expensive, both with compliance and with increasing layers of taxes, while marketplace facilitator laws appear to be making part of the tax picture easier. Please do not be lulled into complacency with marketplace facilitator laws, this is evolving, expanding in several areas while getting smaller in one, and these liabilities are considered personal to the owners of the selling entity (if the entity fails its alleged obligations).
Well of course very valid points but to me, a gigantic tide has completely changed in literally 12 months. The difference to me is that if you failed to collect and remit sales tax that you should have been collecting you were now on the hook for a tax that would otherwise not have been paid by you. So for example in WA that could be 10.1% that you are now paying for, when in fact that buyer may have already paid it to the state or at least should have paid it. Now OTOH if you fail to pay WA their “required” B&O tax we are talking about only .471 percent or 1/21th of the liability compared to pre-WA Marketplace Facilitator world.
So my point is once the last states get onboard the marketplace facilitator train I suspect that any cities/counties/states/etc that have remote seller/economic nexus taxes (franchises, B&O, corporate/personal income, inventory taxes, etc) or that consider FBA inventory to be physical nexus will be on a similar scale as WA B&O tax and these will have been taxes that you should have paid to begin with. So relatively speaking it’s nothing compared to the sales tax issue.
(I, of course, didn’t mention the penalties and interest for not paying or filing)
Delaware doesn’t collet sales tax
Anyone know what a person based in NC, who is already reporting sales to the state quarterly, does to get credit for the tax collected and remitted by Amazon?
North Carolina will need to figure that out before sellers start reporting February Monthly taxes, so by the first few days of March. There is no guidance at this point. Some states expressly tell us not to account for marketplace collected sales at all. The majority of states tell us to report all sales, then enter a deduction for those sales handled by collecting marketplaces, leaving you to account only for those taxes related to sales outside of the collecting marketplaces. For sellers that have no or minimal sales outside of collecting marketplaces, they are usually owed a refund in the next reporting cycle after marketplace facilitator tax collection goes into effect because of refunds issued post-MFTC on sales that happened pre-MFTC.
It looks like NC has provided guidance. See https://www.ncdor.gov/taxes-forms/sales-and-use-tax/marketplace-facilitators-and-marketplace-sellers/marketplace-facilitators-and-marketplace-sellers-frequently-asked-questions — about two-thirds of the way down.
It says “A marketplace seller should include marketplace-facilitated sales and direct sales on Line 1, “North Carolina Gross Receipts,” of the Sales and Use Tax Return, Form E-500. Sales through a marketplace facilitator should be included on Line 2, “Sales for Resale,” of the Sales and Use Tax Return.”
In other words, treat it like a wholesale transaction in which the re-seller will collect and report the tax. Works for me.
But since I still have some sales outside of Amazon, I need to keep making quarterly reports (another section says I wouldn’t have to if I made no sales outside of Marketplace Facilitators) even though I don’t always have any sales in NC in a given year.
So for those in other situations, using what ReigeRidge located, sellers that are only on collecting marketplaces, even if the seller has a physical presence, can get out or stay out. Once the overall sales on all channels exceed a threshold, if any sales are outside a collecting marketplace, then seller needs to get in or stay in. Good balance NC. Well done on the legislation and the online information.
Taken from that NC DOR information online:
Is a marketplace seller who only sells through a marketplace facilitator and does not have a physical presence in North Carolina required to register and file a return if the marketplace facilitator is required to collect and remit on all the marketplace seller’s transactions? Answer: No.
Is a marketplace seller who only sells through a marketplace facilitator but has a physical presence in North Carolina required to register and file a return if the marketplace facilitator is required to collect and remit tax on all the marketplace seller’s transactions? Answer: No. However, a marketplace seller who has a physical presence in North Carolina is required to [do everything related to use tax if that applies, usually only for sellers working in NC].
Is a marketplace seller that sells through a marketplace and also has direct sales sourced to North Carolina required to register and file a return with North Carolina? Answer: If the marketplace seller has met the Threshold through its multiple channels, the marketplace seller is required to collect and remit sales and use tax on its direct sales sourced to North Carolina. The marketplace facilitator is responsible for collecting and remitting sales and use tax on the marketplace-facilitated sales.
You seem very knowledgable about this subject.
Can I ask, what’s the deal with Alaska when it comes to sales tax? I don’t see it mentioned by anyone in this thread, but it’s not listed in Amazon’s marketplace tax collection list here:
Remember “NOMAD” on sales taxes. New Hampshire, Oregon, Montana, Alaska, and Delaware, those five have no sales tax.
Okay, I have another couple of questions… I went down a sales tax rabbit hole today
Do you know if Marketplace Facilitator legislation trumps physical AND economic nexus laws?
That is, if my business is based in California does that physical nexus override Amazon paying sales tax on my sales to California residents?
Or, if I live outside of CA but my sales in the state exceed $500K (I wish, but I read some states have way lower thresholds, so I’m just using CA as an example) am I then responsible for collecting and paying sales tax?
There are other forums where I’ve written long, extensive, explanations of nexus. I’m interested in helping, but I do not have the time to retype what has been shared previously (and still applies). Take this one and start reading from the bottom, up. Marketplace Tax Collection Updates: See them and make them here
@brighto For Marketplace states, Amazon is going to handle collection and remit. Does not matter if you live in the state or not.
If you are registered in the state, you will still need to file.
North Carolina is a somewhat manual system. I am aware of a seller that sells exclusively via “collecting marketplace facilitators,” meaning those marketplaces that perform tax collection, filing, and remittance (such as Amazon where required by law). That seller called NC DOR and closed its sales/use tax account. Go to questions 16 and 17 of NC DOR Sales and Use Tax Division FAQ dated January 28, 2020, page 10 of 12. Michigan and a handful of states (not all) have this same formula: They do not want to bother you (or be bothered by you) if 100% of your sales shipped to their state are via collecting marketplaces. That is, IMO, the most sensible approach and, hopefully, others will follow. A middle ground is a state like Washington that wants reporting because it has a privilege tax (called many things across the nation, such as “Business and Occupation Tax” in Washington). Washington knows it is getting all marketplaces taxes via Amazon and others, but still has a tax for the privilege of “doing business therein.” Washington wants that B&O filing/tax, but no other corporate or personal tax filings (still wants Sec of State registration and annual fees).