Online Sales in USA - Sales Tax Registration

The USA does not have a Value Added Tax (“VAT”) regime. Although there is no concept of paying or charging VAT on your sales, there is a consumption tax known as Sales Tax that might be applicable to your sales.

The calculation of this sales tax is dependent on several factors and is very complex.

The obligation to register is also dependent on various issues, depending on the US States in scope, your fulfilment method and whether or not you have a “tax presence” in the USA.

Amazon sellers are often required to register for sales tax in one or many States. Although it is very unlikely State tax authorities will find out whether you are obliged to register, if you don’t collect the tax from your customer as required, then you owe it yourself.  Therefore, if the US government ever finds out you sold without charging the legally obliged sales tax, they will claim it directly from you. They also have the right to assess penalties and interest on top.

The obligation to register for sales tax needs specific analysis, but it can be summarised as follows:

An Amazon FBA seller (or any business for that matter) should consider collecting tax in any state where the following conditions are met:

• You have “substantial nexus” in that state. This basically means you have more than a very slight physical presence;

• The goods you sell are subject to sales tax in that state; and

• The amount of tax would be “material” to your business.

The simplest way to determine if you have nexus is whether you store inventory in fulfilment centre in a State. At the time of writing, Amazon has Fulfilment Centres (“FC’s”) in thirteen different states.

Twelve out of those thirteen states have specific laws and policies that assert that owning inventory in their state or using a warehouse is enough to create “substantial nexus”.

The materiality of your sales is more difficult to assess. The question is whether the amount of tax you should be collecting is “worth worrying about” from a financial standpoint. Sometimes with low volume, the cost to collect and remit the tax exceeds the amount of tax itself.

Since Amazon does not always notify you before it moves your inventory to a new FC, larger sellers often get registered proactively in all the states where Amazon has an FC. This allows them to start charging tax from the day their exposure begins.