Death and taxes: the two certainties in life. This phrase is often credited to Benjamin Franklin, though the true source is unknown. Regardless though, the idea of taxation, and sales tax specifically, has been around about as long as commerce and trade itself.
This reality was temporarily destabilized by the sudden and rapid growth of online marketplaces like Amazon, with legislatures struggling to keep pace with the fast-paced innovations. For many years, brands and marketplaces alike avoided paying sales tax in many states. That changed in June 2018 with the landmark supreme court case of South Dakota v. Wayfair, Inc.
South Dakota v. Wayfair, Inc
South Dakota believed that online retailers like Wayfair were not paying duly owed sales tax, shorting the state important sales tax revenue. Earlier tax laws included “physical presence” clauses, which meant that if a brand did not have a brick and mortar store within the state’s borders, they were exempt from the sales tax. South Dakota argued that that these physical presence clauses no longer make sense in today’s digital economy, and they fought for the ability to tax online retailers for sales made in their state. Ultimately, the Supreme Court agreed.
As a result, brands that exceed a certain number of annual sales within a given state must pay the state’s sales tax, even if the brand doesn’t have a physical presence in that state.
- Online sellers are now required to collect and remit sales & use tax for online sales in 42 states, even if they lack a physical presence in that state
- 33 states have enacted Marketplace Facilitator laws, which transfer the responsibility from sellers to online marketplaces like Amazon, Walmart.com, and eBay
- Sellers who sell outside of online marketplaces, such as on a direct website, are still responsible for collecting and remitting sales & use tax
- Some states have designated Certified Service Providers (CSP) that manage the tax nexus for online retailers. Kaspien partners with one of these CSPs to handle sales & use tax collection and remittance for our partners and clients
How Marketplaces Are Affected
This landmark decision opened the door for other states to revise or create ecommerce tax laws, requiring sellers to collect and remit sales taxes. So far, 42 states have implemented laws compelling sales tax collection for ecommerce sales.
States have recognized that these new laws are burdensome to both states and sellers, as they create more administrative work for both parties. As such, many states have taken steps to simplify the process and relocate the burden to marketplaces (i.e. Walmart, Amazon, eBay, Etsy, etc.) through Marketplace Facilitator laws.
Marketplace Facilitator laws were created because states believe that a platform is far more likely to consistently meet or exceed the economic nexus threshold, resulting in more consistent sales tax revenue to states. This approach also lowers states’ administrative costs, so they process returns for the platform instead of every seller.
Additionally, many states are working to create a more uniform sales and use tax system across the country because they realize that a simpler process will result in more widespread compliance. Twenty-four states have banded together to form the Streamlined Sales and Use Tax Agreement (SSUTA), with more states moving towards these same measures.
How Sellers are Affected
Not every state with ecommerce tax laws has enacted Marketplace Facilitator laws, which means that there are still some states where sellers bear the burden to collect and remit sales tax, rather than the marketplace.
Keeping track of all the laws and requirements of each taxing jurisdiction is a full-time job in itself, and not all sellers are equipped to make immediate adjustments needed to comply with the laws.
To help with this problematic situation, the Streamlined Sales Tax Governing Board (SSTGB) has designated certain providers as Certified Service Providers (CSP) of the SSUTA. These CSPs calculate and automate the filings at no charge to the retailers. Some CSPs utilize software applications to help sellers track when they have reached the point of economic nexus in a specific threshold, help you register in those tax jurisdictions, and then assist with the actual filing of returns for those areas. Some software platforms even integrate into your accounting software to track the transaction data and compile the necessary information to prepare the returns.
Kaspien offers one such sales & use tax service, partnering with TaxCloud to offer our partners and clients the best solution for automated sales & use tax compliance for both online and brick & mortar sales.
TaxCloud offers the following benefits:
- TaxCloud automatically registers brands in SSUTA member states and assist with registration in non-member states
- TaxCloud tracks brands’ total sales and alerts them when they are approaching a nexus threshold and may be required to register
- TaxCloud can integrate directly into the Amazon Seller Central account or with the Walmart.com portal and pull in all transactional information without requiring any manual formatting
- TaxCloud can file for brands in all 9,998 tax jurisdictions in the U.S. at the required cadence (monthly, quarterly, annually) for each
The advantage of leveraging TaxCloud through an Kaspien partnership is that we can provide the service in addition to dozens of others, functioning as your one-stop shop for all things ecommerce. View all of Kaspien’s services.
Request more information about Kaspien’s tax and compliance services through our contact form.
Ecommerce Taxation Around the World
Over time, how we do business changes, and with it, the collection of taxes. Currently, France is leading the charge in Europe to enact digital taxes on giant tech companies (Facebook and Amazon being some of the largest companies affected) because they feel that they are missing revenue from these companies. It will be interesting to see how all of that shakes out. Death and taxes; the two certainties in life. And from the looks of things, neither of those certainties are going to change anytime soon.
- How South Dakota v. Wayfair Affects Amazon Sellers - February 11, 2020