This is what you can expect when registering in states when you don’t have to.

Since Amazon is collecting sales tax from the states enrolled in the Marketplace Tax Collection service, you haven’t registered in those states and should not be subject to income tax.

They are probably stating this on the “old” notion that if you are collecting sales tax in another state then you must have a physical location (nexus) in that state. They either need to get with the times or you need to find new people.

Are you talking about personal income tax or corporate tax?

I would suspect that if you are a corporation, you may need to file as a foreign corporation in most if not all of those states.

If you are filing as an individual, I would assume a decision would need to be made based on each state’s requirements for non-resident income tax.

Well above my pay grade, but if you got a blanket statement from your accountant and tax advisor, it might be above theirs too.

Yes you have to register with all the states you’re going to be remitting taxes too, even the ones that Amazon already collects for if you have a website or sell on other platforms like ebay, but if Amazon is the only platform you use then you might not have to register with those states. We did like 30 states so far since we didn’t hit the threshold for a couple and a couple don’t start until later in the year like CA, they start April 1 if I remember correctly. It took me weeks to set up all the states because we didn’t want to go through streamline tax.

Here’s the chart I used to start my registrations https://blog.taxjar.com/economic-nexus-laws/ beware craziness will start once you start registration, we just got like 36 letters from the state of Indiana for back taxes all the way back to 2016, and I’m sure a bunch more are going to try and fish for more taxes, the nature of the beast I guess. Thank you South Dakota!!!

I do have expertise in legal compliance and I can offer a framework for sellers to break this down. Look at each state as having four potential taxing compliance issues. And let me say that I do not want anyone as a client; I am retired. I don’t work for anyone other than my own retail store (that also sells on Amazon). I wish everyone well, even if you are my competitor. We can get through this if we work together, even where we make different choices about compliance.

1. Sales and Use Taxes (TPT in Arizona; GET in Hawai’i), that is the physical nexus and/or economic nexus subject gathering most attention (are you in an FBA warehouse and so on). A moving target and covered well elsewhere.

2. Franchise or Privilege Tax (that is on the business entity for the privilege of doing business in a state such as deriving income from selling goods to residents) such as B&O in Washington, LETT in Kentucky, FTB in California ($800 min plus 1.5% after first year), Net Worth in Georgia, and so on in about half of the states (warning, New Jersey requires quarterly prepayments if over $500 will be due, and that’s based upon $100,000+ in annual sales having a tax of $562.50); California requires the min in first quarter). Several states with these “privilege of doing business” taxes have what is essentially a small seller exception that requires filing but no actual payment at this level (see Ohio CAT after $150k; Washington B&O $285k; run your numbers on Texas with the online worksheet). So always be aware here, and often you need to make a separate tax account for filing this report online.

3. Corporate Income Reporting and sometimes taxes. Often, you (seller entity) need to file an annual corporate report that is derived mostly or entirely from your federal 1120 (due March 15). States generally use those same numbers on their forms that are usually due 15-60 days later; an extension for Federal 1120 can be used for a corresponding extension. WARNING HERE: These may even be due, at least technically, in states where you do NOT need to register for or collect sales & use taxes, even possibly in states with no sales tax. Apportionment is each state’s way of determining how much of your corporate income should be subject to their taxes, using overall sales compared to sales in that state, and sometimes a second factor of overall physical assets compared to those in their state. If you sell $100,000 overall and 20% of that is to residents of California, then California will want to tax $20,000 of your corporate income (and you will not pay on that $20,000 in your own state). If you are a pass-thru entity such as an S Corp, then you still file but you have to decide to pay at this level or to move that income to the next tax level, personal. Several states allow you the option (if you declare it in this filing or sometimes in a separate form such as Pennsylvania) to not be treated as a pass-thru entity, meaning you will pay the taxes at this point (but also the corporate tax rate is MUCH higher in most circumstances).

4. Personal. If you are an owner of a pass through entity (such as an S-Corp), states could want personal income tax filings based upon what flowed through your corporation. In the California example, that state would want to put $20,000 of your income through their own personal income taxation process.

All of these apply somewhere. Look at your largest exposure (states that have a sales/use tax ranked in order of 2018 sales) and move forward. Others have said that the sales/use tax is the tip of the iceberg, and they are wise. This is surely intimidating to most small business owners, but ducking and hiding without good information will eventually catch up to you. Why? Because failure to collect/remit taxes is often an owner’s personal responsibility and, it is typically NOT dischargeable in bankruptcy. Different people in similar situations will make different choices. Compliance is not free, and in the long run non-compliance is rarely free.