Sales Tax Boot CampFor Online Sellers

1.29.14

Housekeeping

• Webinar typically lasts 1 hour

• If you dialed in you will be muted for the duration of the presentation

• You can ask questions via the GoToWebinar question box

• There will be a Q&A at the end

Today’s Topics

• “General Rules” of sales tax

• It’s all about nexus!

• How much sales tax to collect

• Filing sales tax returns

• Marketplace Fairness Act

• Here to help and resources

• Special offer!

• Q&A

Quick Intro: Mark Faggiano

• I love solving complex problems for small business!

• Previous tax products:• FileLater • EasyEstimatedTaxes

• Founder of TaxJar

• Not a CPA or tax professional

• Here to share my knowledge

“General Rules” of Sales Tax

• 45 states + 45 sets of laws = too many rules!

• Sellers are ‘collection agents’

• Sell to someone in your state = collect and remit sales tax

• Sell to someone out-of-state = no sales tax….yet

• How much you collect depends on a lot!

“General Rules” of Sales Tax

• Filing deadlines usually tied to sales volume

• Some states have discounts for early payment

• All states have penalties for late payment

• Save everything in case of audit

Selling Online in 2014

Everyone’s Multi-Channel

• Selling items on more than one platform

• Some platforms help you collect sales tax

• None help you file or pay

• Sales tax is being collected in different accounts

• Once you collect, you’re on your own!

Nexus = When to Collect

Nexus: When to Collect

• Your business has a presence in a state significant enough that you’re required to comply with state sales tax law

• Register your business

• Collect sales tax on orders shippedto that state

• Pay what’s been collected

Nexus: When to Collect

• Nexus for one channel means nexus for your entire business• Ex – FBA nexus gives your eBay

business nexus

• No nexus in a state means youdon’t have to collect

Common Nexus Types

Home or Office Inventory

• Where you live and/or operate your business

• Live in San Jose and sell out of your house

• Comply/collect in CA

• Inventory is in a 3rd party warehouse

• Live in San Jose with inventory in PA

• Comply/collect inCA & PA

Dropshipping doesn’t apply to either scenario

3rd Party Fulfillment & Nexus

• Inventory is becoming nexus• MN on April 1

• Register with each FBA state

• Collect sales tax

• Pay what you collect

• Remit sales tax returns

FBA’s Impact on Nexus

Every ‘FBA state’ says your inventory counts as nexus

• Register with each FBA state

• Collect sales tax

• Pay what you collect

• Remit sales tax returns

What are the FBA states?

Collecting Sales Tax

Example

• Example: Joe Seller is based in Akron, OH

• Joe uses a 3rd party fulfillment provider• Inventory stored in NV

• He’s complying in 2 states:• OH• NV

Home State Sale

AKRON, OH LAKEWOOD, OH

Collect Sales Tax

Nexus Sale

OHIO NEVADA

Collect Sales Tax

No Nexus Sale

OHIO FLORIDA

Don’t Collect Sales Tax

Calculating Sales Tax

How Much Do I Collect?

• Tax rate usually = state + local + special

• Origin-based state• Tax rate = seller’s location• One rate for entire state

• Destination-based state• Tax rate = where item is shipped• Variable rate

• California

Origin: Sale in Ohio

AKRON SHAKER HEIGHTS

Rate collected: 6.75%

• State: 5.75%

• Summit County: 1.00%

Destination: Sale in New York

STAMFORD BUFFALO

Rate collected: 8.75%

• State: 4.00%

• Erie County: 4.75%

California: We’re Special!

• Technically, neither Origin or Destination

• Sales tax rate = state + district tax(es)

• District tax only collected on sales in a district in which you are “engaged in business”• (Pub 44, Page 5)

• Sellers are able to charge 2 different rates• Customers in your district• Customers outside your district

• Pub 177

CA: Same District Sale

SAN DIEGO CLAIREMONT

Rate collected: 8.00%

• State: 7.50%

• San Diego County: 0.50%

CA: Out-of-District Sale

SANTA CLARA ALAMEDA

Rate collected: 7.50 %

Buyer responsible for local use tax OR Seller collects based on destination

Collecting on eBay & Amazon

How to Collect on Amazon

• It’s up to the seller to correctly setup collection on Seller Central

• Amazon will NOT tell sellers howto collect in FBA states

• Example of collecting ‘wrong’• Collecting only state rate in

destination-based state

How to Collect on Amazon

FBASalesTax.com

• FREE ebook that includes the settings for every FBA state

How to Collect on eBay

• Able to collect only one rate

• Collect at state rate for everyone• Pay out-of-pocket for in-district sales• Competitive advantage?

• Collect at highest rate for everyone• Pay whatever you collect!• Nothing out-of-pocket

Filing Sales Tax Returns

Filing Returns

• Combine and file a single return per state• Not separate returns per channel

• Filing on time can equal a discount• blog.taxjar.com/state-sales-tax-discount

s/

• File zero returns!• When you’ve collected $0 in sales tax

Filing in Destination States

• Huge pain!

• You have to tell the states how to divide up the money

• Calculate taxable sales and sales tax collected by jurisdiction

• Gets worse if you’re multi-channel

WA eFile

Marketplace Fairness Act

Status

• Federal legislation

• Passed quickly in Senate in Spring 2013

• Currently stalled in The House

• Will it be added to ‘larger’ bill?

If Legislation Passed Today…

• $1 million remote sale exemption

• Current nexus relationships will remain

• Remote sales = compliance even without traditional nexus

• If you’re under $1MM in remote sales, you still need to comply with nexus states

Existing Nexus Example

• Seller is based in WA

• Annual remote sales = $1.5MM• $900k to NV• $600k to CA

• Seller registers in NV; remote sales = $600k

• Seller now under the $1MM exemption

Last Thing…

Trying to comply > knowingly not complying

TaxJar: Here to Help

• Automatically pulls and organizes sales and tax data from your seller account(s)

• Creates daily reports subtotaled by local jurisdiction (county, city, etc)

• Estimates what you SHOULD have collected

• Pro channel for accountants

Dashboard

Actual vs Estimated

Actual vs Estimated

• Not sure if you’ve set up your sales tax collection correctly

• Can only enter a single rate per state

• You’ve collected sales tax on only some of your orders

TaxJar: Here to Help

• TaxJar.com

• 30-day free trial (no credit card required)

• Monthly or annual subscriptions

• Pricing based on transaction volume• Starts at $9.95/month for 1k transactions

TaxJar: Special Offer

Get an extra 1 month for FREE

1. Signup for TaxJar and email mark@taxjar.com• Extra 15 days FREE

2. Two Options for another 15 days FREE

• TWEET: I just signed up for @TaxJar• Like TaxJar on Facebook

Resources

SalesTaxCommunity.com

Talk with other online sellers!

blog.taxjar.com

Content just for ecommerce sellers

FBASalesTax.com

Free Guide: “Amazon Sales Tax

Quick Reference Guide”

Let’s Talk!

Email me: mark@taxjar.com

Twitter: @taxjar

Q&A