For many companies selling online, figuring out where to collect and remit sales tax requires the expertise and bandwidth of the Amazon legal department. Given that most companies don’t have access to those kinds of resources, this quick list will help determine whether you’re overlooking sales tax obligations.
1. Drop shipping
In some states, use of an in-state third-party shipper by an out of state retailer can trigger a sales tax obligation. In California, New York, Texas, and Florida for example, if a drop shipper delivers goods on your behalf, you could be obligated to collect tax.
2. In-state affiliates
An increasing number of states are passing Amazon Tax laws designed to require Amazon and other remote sellers to collect sales tax. In 2014 alone, Amazon started collecting sales tax in Illinois, Indiana, Florida, North Carolina, Tennessee and Nevada. Don’t be fooled by the name, however, Amazon Tax laws impact more businesses than just Amazon.
Consider California’s Amazon Tax law: if a business sells more than $1 million to California consumers in the past year and has more than $10,000 in sales referred by an affiliate operating in California, they have to collect sales tax on California sales. Referrals here include online referrals.
Even if your business doesn’t have a warehouse or distribution center physically located in a state, you may have to collect sales tax wherever you house inventory. Sellers that use Amazon’s fulfillment program, for instance, may have a sales tax obligation in any of the thirteen states where Amazon has a fulfillment center. For example, Pennsylvania directly asserts that using fulfillment services creates nexus for remote sellers.
4. Tradeshow attendance
Did you send any employees to any trade shows, like IRCE, last year? If the answer is yes, you may have created the obligation to collect tax in the state where you attended the show. Not all states consider trade show attendance to be a sales tax trigger, but enough do that it’s well worth tracking the tax laws in states where you attend shows.
5. Remote employees
Even if your sales people don’t attend trade shows, they may give you a sales tax obligation if they travel to other states to visit customers or prospects. Variables include how frequently a salesperson travels to a given state and the type of activities they engage in while there.
Of course, there are other activities and connections that can give online sellers the obligation to collect sales tax on remote sales. It’s key to keep up on local and state laws anywhere you make sales so you don’t find yourself out of compliance.