In November 2018, Amazon announced that it will comply with the State of California Department of Tax and Fee Administration’s demand to provide third-party seller data. How will this action affect you as an FBA seller?
States Are Getting Serious About Sales Tax
We believe it’s yet another sign of things to come. More and more states will be tracking down the sales tax they believe they’re missing out on through eCommerce.
This isn’t the first time it’s happened. Last year Amazon released seller info to Massachusetts, Rhode Island, New York and Pennsylvania. Some states, such as New York, apparently only wanted to verify that all the tax being collected by registered sellers was being remitted to the tax authority. But California’s demand sets a precedent for a state to contact ALL sellers directly, whether they’re registered to collect sales tax or not, for information about sales they’ve made in the state.
Another such sign happened last June, when the United States Supreme Court ruled in favor of South Dakota (in the case of South Dakota v. Wayfair), that physical presence in a state is no longer required as part of the tax nexus. In other words, you should be collecting and remitting sales tax for any state where you have customers — no matter what U.S. state or country you’re based in.
The handwriting is on the wall, and undoubtedly all states will have some such policy in place sooner or later.
More Hassles for Non-Registered Amazon Sellers
Amazon has not provided sales or warehouse data to California, as some other states have done. All they’ve sent is contact info and federal employer identification numbers.
Apparently California is using that data to send questionnaires to sellers on the list. So far, the questionnaires favor those already registered to collect sales tax, in that you can simply provide your tax ID and leave the rest of it blank. So it appears that the state is really targeting non-registered sellers.
Don’t Ignore State Requests for Info
Many Amazon sellers who’ve already received the California questionnaire have put it aside, assuming the state would be slow to act. That may be true, but sooner or later, it WILL act.
And you really won’t like their next step, which is to turn you over to an auditor who will make an “estimated assessment” of the sales tax you owe. In fact, the auditor will just be guessing, not calculating based on the data you provided. Those guesses are often much higher than reality.
The state will then enforce collection of that assessment; and yes, they have the power to do so.
Don’t Expect Amazon to Hold Your Hand
You may have been expecting that Amazon would collect sales tax for FBA sellers. In fact, it’s already doing so in some states like Washington — usually with the result of more complications for registered sellers and more risk for non-registered ones.
Anyway, you are still liable for the tax in the years before Amazon started doing it. The state can hold you accountable for up to 7 years of back taxes, plus penalties and interest.
States will probably find it easier to pursue the third party sellers directly, rather than Amazon. That’s why we don’t believe it’s smart to rely on Amazon to make this sales tax issue go away.
There’s Still Time to Make a Plan
While it’s true that government agencies can take months to get moving after a policy decision is announced, the trend seems to be toward more fast and aggressive action in the case of eCommerce sales tax collection. Xendoo helps customers navigate complex sales tax laws by keeping them compliant and leveraging other 3rd parties for tax calculations. For more about our sales tax services, click here.