Sales Tax: Understanding Pitfalls for Remote Sellers and Ecommerce Companies

Today’s consumer can purchase virtually whatever they want on the internet and have it delivered to their doorstep. Facilitated by the ever-changing world of ecommerce, the number of multinational businesses and the variety of products sold around the world continues to grow.

Whether you’re a foreign business simply selling products into the U.S., or a domestic company offering products or services to customers across the country, there are important requirements to consider. As ecommerce has grown, there are state and local tax implications to be aware of.

A “remote seller” is a seller that does not have a physical presence in a state but who sells products or services for delivery into that state. States have outlined different thresholds for when a remote seller has established nexus and therefore has sales tax obligations, should the products be subject to sales tax. It is crucial for all remote sellers to understand the nexus sales tax requirement responsibilities.

A total of 43 states have adopted economic nexus rules with the minimum dollar threshold range from $100,000 to $500,000 in revenue derived from the prospective state annually. Additionally, states have a transaction count threshold in place for remote sellers. Ecommerce companies that have low-dollar transaction items, will trigger nexus quicker in the states where the transaction count threshold is implemented as part of the economic nexus requirements. Once economic nexus is established in the state, it is important for the ecommerce companies to understand the taxability of their product offerings, especially if they are in the industry of clothing, dietary supplements and food. This is due to different taxability rules implemented by individual states.

For questions or additional insight around sales tax, please contact a member of Withum’s State and Local Tax Team.

Further taxability review is recommended, should the ecommerce company provides access to goods or services. Technology has afforded consumers the opportunity to purchase or access software services over the internet, such as SaaS platform, download or stream audio and visual products, and digital goods, retrieve information, etc.

To make things more complicated, states have passed a marketplace facilitator requirements. While the state’s intention was for companies like Amazon and eBay to collect sales tax on the sales they facilitated on their platforms, it has created a compliance nightmare for the smaller marketplace providers. Generally, a marketplace facilitator is a company that connects a seller with a buyer for a taxable retail sale, processing the payment and providing a service to facilitate the retail sale. The definition of a marketplace facilitator can vary by state, as something else to consider in the sales tax journey.

What do ecommerce companies need to know about their sales tax requirements?

  • States where the company has a sales tax nexus
  • Whether the company is a marketplace facilitator or not, if applicable, and review the nexus requirements as a marketplace facilitator
  • Taxability of product and service offerings
  • Identify any past exposure of sales tax liabilities, consider if a voluntary disclosure is needed
  • Register company in applicable jurisdictions for sales tax purposes
  • Create a compliance claim
  • Consider the implication of income tax filings

Withum’s State and Local Tax Team is well versed in managing the sales tax for ecommerce companies, helping them be compliant and minimize risk. Please reach out with any questions you may have to ensure you are minimizing any sales tax exposure that could impact your bottom line in today’s growing ecommerce world.

State and Local Tax Updates

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