SCOTUS Ruling on Internet Sales Tax | Q&A for Ecommerce Sellers
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SCOTUS Ruling on Internet Sales Tax | Q&A for Ecommerce Sellers


hey it’s patti scharf CPA and co-founder
of catching clouds the leader on e-commerce accounting today we’re going
to talk about sales tax again if you haven’t already checked it out we’ve got
this great video that Scott and I did a few days ago shortly after the US
Supreme Court came back with their ruling on the South Dakota versus
Wayfarer case where they set up basically the standard for what needs to
happen for charging sales tax for online sellers and frankly all sellers but we
focus on online sellers because that’s what we do so so today we’re just gonna
go over some of the questions and answers that we’ve been seen there’s
been a flurry of activity lots of articles lots of chatter on different
forms and Facebook and different things and so we thought we’d tackle the most
common questions that we’ve seen and see if we can get you guys some answers so
let’s get started so the first question is so does this mean that sellers now
have to start collecting sales tax well this is kind of a funky question because
it implies that they didn’t have to collect sales tax previously but they
actually did they if you have physical Nexus so what that is is a business
presence in a particular city county state you have you have a legal
obligation to collect sales tax in those jurisdictions so how do you know if you
have physical Nexus that’s where you have property that’s where you have
inventory that’s where you have affiliates sales people employees things
like that things that actually tie you to the state so a lot of people wanted
to kind of pretend that they didn’t have to collect sales tax or they took the
attitude that well you know let them come and get me I’m too small to be
worried about or something like that so it is true that people in those
situations had to collect sales tax what this ruling did was it added a new
concept called economic Nexus so there are some states
who were trying to say hey you’re you’re tied to our state by virtue of
fact that we see sales going on in our state if you weren’t tied to our state
then we wouldn’t be seeing these sales so collect the sales tax and pay up so
so that’s what you’re seeing with some of these other states like South Dakota
where they have hey if you’re selling at least a hundred thousand dollars or have
two hundred transactions in our state then you have a filing obligation in our
state again check out that video that I told you about because we go into a lot
more detail about that the next question oh so does that replace the physical
Nexus thing so a lot of people have this misconception that because of this court
case now we’re paying attention to economic Nexus and we don’t have to
worry about the physical Nexus and that’s not true both are in effect so
you need to pay attention to both of those situations one last very important
bonus tip for you on this is that you need to remember to register in each of
these states that you’re planning on filing in before you actually start
collecting sales tax because if you don’t have a sales tax license to
collect sales tax collecting sales tax without one is illegal it’s a criminal
act so I recommend you try to avoid that the next question is our small sellers
exempt you would think so logic would kind of lead you to believe that but but
here’s the problem if it kind of depends how you define small seller and what
might be a small seller in one state might not be a small seller in another
state you really have to look at the the nexus rules in each of those individual
states to see whether you’re considered a small seller you everybody is equal
under the law this applies across the board to everybody but if you go below
those thresholds then yes you would be exempt but you need to keep an eye on it
because as you grow you might exceed it so you need to pay attention that if you
stick around to the end of this video we’ll give you a link to something that
can help you kind of see what those thresholds are and see if it might apply
to you the next question is if I sell wholesale so here’s the deal
if you’re selling your products to somebody else and they are selling it to
the ultimate consumer the end user of that product the person you’re selling
it to is the one who’s responsible for collecting and remitting sales tax
however when you are applying these nexus rules it’s my understanding that
you need to pay attention to your total gross sales so even if you are only
selling to wholesalers you need to take a look let’s say I’m selling a million
dollars and I meet actually let’s make it huge a hundred million dollars and
I’m selling to all these different customers in these different states I
need to have because I’m exceeding their thresholds I’m going to need to register
to file returns in their state when I’m filing the sales tax returns I can list
on the return hey this much is exempt because somebody else is selling the
product to the end-user and so you won’t have to actually collect tax and remit
it but that doesn’t mean that you’re out of the responsibility for actually
registering and filing a zero return or something like that
one more comment about that if you are selling wholesale you need to make sure
that you have on file a copy of a tax of a resale tax exemption certificate for
every single customer that you’re selling wholesale to otherwise you’re
not supposed to be exempt from collecting and remitting sales tax for
that person or company what if my products aren’t taxable this is the
exact same situation as the wholesaler you have to count all of the sales of
your products all of the money that you make from that if your products happen
to not be subject to tax then you just don’t charge your customers tax and you
don’t remit it but that doesn’t have anything to do with whether or not
you’re meeting those those Nexus thresholds that we were talking about
before so if you’re if all of the products that you’re selling are exempt
from tax and you’re selling 10 million dollars worth then chances are you’re
going to need to register file for sales tax even if you
don’t collect and remit that tax so the next question is can’t Amazon just
collect everywhere for me so some of you may know already that Amazon will
collect and remit the sales tax in Washington State and in Pennsylvania and
soon they’re going to be doing that in Oklahoma as well so a lot of people feel
like yay now I don’t have to worry about Washington or Pennsylvania or soon-to-be
Oklahoma and here’s the problem with that all that Amazon is doing is
collecting and remitting the sales tax it is not filing the tax returns for you
it is not including any sales tax that you may have collected on Shopify or
eBay or big commerce or anywhere else so you still have this filing obligation
regardless of who’s collecting and remitting the sales tax so what’s going
to end up happening is when you file your sales tax returns you’re gonna say
hey Amazon paid in this much I paid in this much here’s the amount that’s due
or overpaid or it’s just right and that’s how you’re gonna get your returns
filed so it doesn’t actually make things any easier at all if anything I’d say it
makes things a little bit more complex so then the next question is all right
so I’ve gotta go look at all these rules all the individual rules for each of
these 45 states and I have to figure out who I need to collect and remit tax and
I need to figure out how to get that all filed and stuff and then I file it and
I’ve paid all the registration fees and I pay whatever other fees come up and
then what my nightmare my this super expensive administrative annoyingly
painful process is over right I hate to break it to you but chances are the
states are going to start coming after you for income tax or franchise tax so
this is going to be a huge problem for years to come unless Congress steps in
and does something different so I hate to break it to you but the nightmare is
just beginning okay so last question where can I go for
help if you’ve been reading any of the articles watching any videos or anything
they’re probably all advising you to go to a sales and local tax expert we
advise the same thing we are not actually sales in the local tax experts
we know a lot of about it because it’s really important to our customers and
all we do is ecommerce so so we’re super tuned into this process and everything
but if you have questions on your particular situation you definitely need
to go see an actual sales and local tax expert we have links to some of our
favorites down below we also have links to some tools that can help aid you in
the filing process Avalara taksa fight axe your those are the big three so
there are links to those down below as well we also have a download you can get
to a link to it down below and it’s it’s basically a spreadsheet that gives you
the general rules as of today in all these different states what their
thresholds are and things like that you’ll definitely want to check in with
a sales and local tax expert a salt expert to make sure that you’re doing
things the right way if you are at all confused about the process or need some
help navigating the waters so I hope you like this video and that it helped if
you did like it please show us some love by liking sharing commenting if you
haven’t already subscribe to our Channel please do and we will catch you later

5 Comments

  • Edwin Figueroa

    Great follow up video. You guys are awesome! Best no nonsense video I've seen yet on this subject. Keep em coming. Thank you.

  • Catching Clouds Academy

    Thanks for watching! Do you have any other questions we missed here? Share them in the comments below!

  • David Philpott

    Much thanks! Big help! You've answered my question on how the physical nexus plays into the new ruling for fba sellers.

  • Michael Horton

    2 questions you have focused on state taxes collected but many municipalities also have sales taxes. I've traveled cross country and have many times seen on receipts 3 different taxes is this also going to be something that has to be addressed? Also don't know if you have the answer to this , 31% of Amazon FBA are Chinese sellers which have been exempt from collecting sales tax has this also been addressed? Thx for any comments on this.

  • Chloe H.

    This video and series on sales tax has been so insightful and helpful, thank you! If you don't mind I do have a question, I'm confused by what exactly constitutes physical nexus. We send inventory to FBA warehouses but obviously where and for how long that inventory is there is always changing, so how does that work with establishing physical nexus? For example, if we send items to an FBA warehouse in GA but the items are only there for 2 months and we never send inventory to GA again in that year does that mean we only need to collect GA sales tax for those 2 months? Thank you so much!

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