How Kat Simpson Handles Sales Tax Like a Pro with Outright
outright.com
How Kat Simpson Handles Sales Tax
Like a Pro with Outright
How Kat Simpson Handles Sales Tax Like a Pro with Outright
outright.com
How Kat Simpson Handles Sales Tax Like a
Pro with Outright
Amazon FBA sellers have a sales tax problem. Most online sellers understand sales tax. You live and
operate your business in a state, thus establishing “nexus” in that state. With nexus, you must collect
sales tax. (Unless that state is one of the five states without sales tax.)
So what’s the FBA tax problem? When drop shipping your products from Amazon warehouses, you create
“nexus” in those states, too!
Wait, what?
Say you live in New Mexico, but sell your goods via Fulfillment by Amazon. When
you send an order into to Amazon, the company then has permission to ship your
goods between their fulfillment centers, meaning that you may eventually establish
nexus in every state where Amazon has fulfillment centers! Suddenly, you are
responsible for collecting sales tax in all three of those states, when before you
were probably accustomed to only collecting sales tax in New Mexico. And you’re
not required to collect sales tax on just your Amazon FBA sales. No, now that you
have nexus in those states, you’re responsible for collecting sales tax whenever you
make an online sale – no matter if it’s on FBA, eBay, Etsy or your personal website.
We caught up with one prolific FBA seller (and Outright blogger), Kat Simpson, to
find out how she handles the burden of calculating, collecting and remitting sales
tax to a dozen states.
As of December 2012,
Amazon has fulfillment
centers in 14 states and
they are opening new ones
rapidly. If you sell on FBA,
you most likely have “nexus”
in all states where an
Amazon fulfillment center is
located.
WHERE Must an FBA Seller Collect and Remit Sales Tax?
First off, says Kat, it’s important that you keep track of every warehouse Amazon has you sending goods
to. Keep in mind that they ask you to send your products to warehouses that are convenient for the
customer, not so much to you, the seller. So even if you live in Florida like Kat, you may end up shipping
FBA goods from Nevada. And that means you need to keep up with Nevada sales tax. As Kat says, it’s a
best practice to simply collect sales tax for every state that has an Amazon Fulfillment center.
The next step is to register for a sales tax ID in each state. Outright’s handy Sales Tax Resources for
Online Sellers in Every State guide can help you find each state’s department of revenue or other tax
collecting body. From there, you will register for a sales tax license and each state will furnish you with
their requirements for collecting and remitting sales tax.
Pro Tip: If you sell on other platforms like eBay or Etsy, make sure you are set up to collect sales tax in
every state that you have nexus on those platforms, too. For more info:
Charging Sales Tax on eBay 101
Charging Sales Tax on Etsy 101
Charging Sales Tax on Amazon Marketplace 101
WHEN Must an FBA Seller Remit Sales Tax?
Once you’ve signed up to collect and remit sales tax with each state, your next order of business is to
figure out when you must pay. Sales tax is traditionally remitted monthly or quarterly, and sometimes only
annually.
How Kat Simpson Handles Sales Tax Like a Pro with Outright
outright.com
Kat told us, “When I signed up with some states, they had me sending in sales tax payments every
month. But when they say that I was sending in $1.06 or even nothing at all they switched me to quarterly
or annually.”
From there, Kat uses a Google calendar to reminder herself when sales tax is due in each state. Keep
in mind that most states require you to file your sales tax even if you didn’t collect any sales tax in their
state. If you don’t file – even if you don’t owe anything – you will almost always be hit with a fine.
Another thing to remember is that some states count “quarters” in a different way. A state’s “quarterly”
deadline could fall in May or October, so be sure to follow each state’s tax calendar.
HOW Does and FBA Seller Calculate How much Sales Tax She Owes?
Kat has been an Outright Power User almost since the beginning, and she details for us how she uses
Outright to pay her sales tax. (Note that Kat logs in through eBay, but her instructions work even if you log
in at https://Outright.com).
To calculate monthly sales tax:
1. Login to Outright and go to your “Reports” tab
2. Choose “Types of Income” from the menu on the left hand side
3. Filter the date at the top left so that it only shows the income from the monthly reporting period. Be
sure you are using the correct year! (I.e. Filter from “November 2012 to November 2012” so you only
show a single month.)
4. Make a note of the dollar amount in sales you made for the month. You’ll need this amount when filing
your sales tax forms online.
5. Next, go to your “Reports” tab and click “Sales by State” on the left-hand menu bar. Be sure to also
filter the date for the monthly reporting period you are dealing with.
6. This report automatically comes up in chart form, which looks like a map of the United States. Click
“Table” in the top right hand corner.
7. You’ll see a list of states where you made sales. If you had sales in any of the states where you are
required to collect sales tax, write the amount for each state down.
8. From there, log on to the website of the state for which you would like to file.
9. Each state will ask you for your gross sales, which is the number you noted in Step 4.
10. Each state will also ask you for your “exempt sales.” These are the sales you made that month that
are not taxable in that state. To get this number, subtract the amount you came up with in Step 7 for
this particular state.
For example, you made $2,000 in sales in total for the month of November 2012. But only $10 of that
amount was sold in Virginia. When filing your Virginia sales taxes, $1,990 would be considered “exempt”
from Virginia sales tax. From there, the online form will help you calculate exactly how much you owe in
sales tax on that $10 sale.
To calculate quarterly sales tax:
1. Login to Outright and go to your “Reports” tab
2. Choose “Types of Income” from the menu on the left hand side
3. Filter the date at the top left so that it only shows the income from the quarterly reporting period. Be
sure you are using the correct year! (I.e. Filter from “October 2012 to December 2012” so you only
show a single quarter.)
4. Make a note of the dollar amount in sales you made for the quarter. You’ll need this amount when
filing your sales tax forms online.
How Kat Simpson Handles Sales Tax Like a Pro with Outright
outright.com
5. Next, go to your “Reports” tab and click “Sales by State” on the left-hand menu bar. Be sure to also
filter the date for the quarterly reporting period you are dealing with.
6. This report automatically comes up in chart form, which looks like a map of the United States. Click
“Table” in the top right hand corner.
7. You’ll see a list of states where you made sales. If you had sales in any of the states where you are
required to collect sales tax, write the amount for each state down.
8. From there, log on to the website of the state for which you would like to file.
9. Each state will ask you for your gross sales, which is the number you noted in Step 4.
10. Each state will also ask you for your “exempt sales.” These are the sales you made that month that
are not taxable in that state. To get this number, subtract the amount you came up with in Step 7 for
this particular state.
Most states require sales
tax license holders to file a
sales tax form even if you do
not owe any taxes for that
period. Failing to file could
result in a fine, so be sure
to file even when you don’t
owe!
For example, you made $2,000 in sales in total for the 4th quarter of 2012. But
only $10 of that amount was sold in Virginia. When filing your Virginia sales taxes,
$1,990 would be considered “exempt” from Virginia sales tax. From there, the
online form will help you calculate exactly how much you owe in sales tax on that
$10 sale.
Finally, be sure that you file in every state where you are required to file. Most
states require you to file even if you don’t owe them any sales tax. Failing to do so
could result in a fine, so don’t forget!
HOW Does an FBA Seller Remit Sales Tax?
Kat uses Google Calendar to set sales tax reminders for herself on the 15th of each month. (This is
because sales tax is due on the 20th day of the month in most states.)
All the states she current drop ships from allow her to file and pay online, which makes her process go
faster. That said, Kat tells us it still takes her at least an hour to file and pay the states that require her
to pay monthly, and whenever quarterly tax payments roll around, it takes her about an hour and a half.
This is definitely one task you want to make extra time for, especially considering that forgetting can result
in hefty fines.
Finally, Kat makes sure that she goes to her “Taxes” tab and “Sales Tax” subtab and ensures that she has
entered each payment. She’ll be asked to “Record a Payment to the State” and there she can enter which
state she paid, and how much she paid. This will show up as an expense in her “Expenses” tab. Be sure
to do this, too! Every business expense counts when it comes to tax deductions.
We hope this guide has helped you understand, collect and remit sales tax. If you have any questions,
please consult your account or ask the finance pros in the Outright Community. For more information
on other types of business taxes, like annual taxes, quarterly estimated taxes, and the 1099-K, visit
Outright’s Tax Center.