If you started an E-Commerce business, just make sure you’re ready for the compliance that follows it. Read below for insight from our Tampa Accountant.
Scaling an E-Commerce Business is hard enough, let a Tampa Accountant help you double-check your compliance to give you peace of mind.
E-Commerce Sales Tax 101
Is your product taxable?
Understanding nexus
Amazon and sales tax
When it comes to E-Commerce businesses, they are in a league of their own. When it comes to E-Commerce businesses selling on Amazon, however, they’re especially in a league of their own! The greatest battle an E-Commerce business has to face is the ever-changing landscape that is sales tax. Why is that? Because every state is so different. Every portal and interface is different. Every reporting standard is different. The list of exemptions and exceptions is different. The list goes on and on. Couple that with being a business that primarily sells on Amazon and you have a laundry list pf to-do’s! Below we will look at a few ways where you can check the compliance health of your E-Commerce Business to ensure you’re buttoned up with regards to sales tax.
1 - First things first, is your product taxable?! Our Tampa Accountant investigates nontaxable ‘tangible’ goods.
Chances are, your product most likely is taxable if you’re selling on Amazon. However, sometimes ‘tangible’ products can be exempt. Examples specific to FL include:
Medical Supplies (needles, syringes, chemical compounds, test kits, prosthetics, etc.)
Custom Software (this could or could not be taxable. In FL it depends but usually isn’t. I.e. web-based software is not taxable)
General grocery items (i.e. meat, poultry, cheeses, etc.)
Most other tangible goods are subject to sales tax.
What is sales tax? Sales tax is a tax added to the price of taxable goods or services and collected from the purchaser at the time of sale. Florida's general sales tax rate is 6%, then you collect an additional % based on the county of the purchaser. Example: Hillsborough County has a 1.5% rate of sales tax, so if you sell taxable goods in Tampa, you must collect 7.5% at the time of sale. It’s important to consult with a Tampa Accountant to determine what your exposure and liability to sales tax in FL may be.
2 - What if I am based in FL but sell to other states? Why you might be liable to filing and paying sales tax to other states.
By nature, E-Commerce businesses process most, if not all, of their sales online. This poses a unique challenge as selling in multiple states and jurisdictions means the possibility of creating nexus.
Sales tax nexus defines the level of connection between a taxing jurisdiction such as a state and an entity such as your business. Until this connection is established, the taxing jurisdiction cannot impose its sales taxes on you.
There are 2 ways to establish a nexus. Revenue and Volume.
For some states, that connection is a dollar value. For example: if you are based in California but sell a lot in Florida, Florida's nexus for out-of-state vendors is triggered when you hit $100,000 annual revenue from Florida residents. That could mean one sale at $100,000 or 100,000 sales at $1. Either way, you hit Nexus in Florida and will be required to file and remit with the Florida Department of Revenue.
For other states, that connection is based on sales volume. For example: if you are based in Florida but sell a lot in North Carolina, then you just have to pass 1 of 2 tests to qualify for Nexus. You either have to have $100,000 in sales or 200 transactions. Whichever comes faster. Again, could be 200 items sold at $1, but you’d qualify for Nexus.
For a complete guide to nexus by State, Click Here!
3 - But what if I only sell on Amazon, don’t they handle everything?
The short answer is: no. Amazon will:
Collect and remit taxes to your home state
Normally alert you if you’ve hit Nexus in other states
Generate reports based on sales by the state to help you self-report
Amazon will not:
Register you for any sales tax IDs
Report to any states other than your home state
Handle any Department of Revenue notices you receive
It’s important that you understand those limitations because although Amazon is otherwise ‘automated’, the compliance piece is not. Additionally, when selling on Amazon, special sales tax rules apply that are critical to know:
If your inventory is held out of state, you qualify for Nexus in that state and must register to file and report in that state
This is huge! Because although you might not be selling there, you still have physical Nexus and qualify to register. This is also important because Amazon has fulfillment centers all over the US. You must review monthly to see where your inventory is housed to make sure you’re on top of compliance. So if you’re based out of FL but hold inventory in NC and sell to SC, you’re triggering Nexus in potentially 3 states even though you haven’t left your home office!
Why Work With Taxes Tampa?
For over a decade, Taxes Tampa has sought out to be a communication-focused Tampa Accounting firm. We don’t operate on a volume-based business model which allows us to check in with our clients more than the average accountant in Tampa and offer our clients a more hands-on and advisory tax experience. We want to ensure you understand the ABCs of LLCs, Taxes, and everything in between. Contact us today for a free tax consultation with one of our Tax Accountants in Tampa!
Foot Notes:
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