Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
When starting a business, whether it’s putting up a physical store or selling things online, you can’t run from the fact that you have tax obligations. Almost everything you sell is imposed with taxes, and as a business owner, you must be informed about sales taxes for ecommerce businesses.
Understanding your tax liabilities will help your business grow and even help you strategize your next move to improve your revenue. Aside from this, neglecting your taxes can result in fees and penalties that can damage your company and lead to your business’s closure.
To help you jumpstart your business, we’ll give you a quick and easy overview of keeping track of ecommerce taxes. So, take down notes, and let’s carve your way to success.
If you’re a business owner selling online on ecommerce platforms like Amazon and Shopify, it’s guaranteed that you will encounter sales tax. All the items you will put on sale will be levied with them.
| 💡Sales taxes are certain percentages added to the final bill of your customers. |
Customers pay for the sales tax, and business owners act as the middlemen who collect and remit sales taxes to the proper tax collections agency.
However, the potential buyers of online sellers can come from different places, which complicates the process of determining and applying the appropriate sales tax. Because of this, ecommerce sellers need to be well-versed with the tax rates and rules in different regions to collect accurate taxes.
| 💡Sales tax differs in different countries and across states because it depends on their retail or commerce sales tax laws. |
Keeping up-to-date with state sales tax laws may be overwhelming among sellers. So, here are some things you must know to help keep you on track with ecommerce sales tax.
If you’re wondering what a “nexus” is, it refers to the connection between your ecommerce business and a specific state.
| 💡A sales tax nexus indicates to the state that you are conducting business within their jurisdiction and allows you to fulfill your sales tax obligations to that state. |
So, if you are a business owner in the United States, it’s important to know that 45 states impose different sales tax percentages, and five states don’t collect them. States that don’t collect and remit sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon.
Understanding how the sales tax works in your economic nexus will help you with your sales tax compliance. Here are some key points to help you further.
If these taxes are piling up and are still confusing to you, you can hire professional accountants to help you manage your sales tax so you can focus on running other aspects of your business.
If you sell your products through online marketing platforms like Amazon, Shopify, or Etsy, you must be aware of their policies. Online marketplaces have different programs that can help you collect and remit taxes hassle-free.
For example, when you sell on Amazon, the sales tax is automatically added to the final bill of your customer upon checkout. Amazon will collect sales tax for you, and you can access the records of the amount collected in your Amazon seller profile to file the report at the end of each fiscal year.
However, policies on sales tax online platforms may vary, so it’s best to check them out first to determine which marketing platform is best for your business.
| 💡According to Amazon’s policies, their sales tax rate is higher than the law mandates because the collection service fees are included in their simplified tax collection service. |
The largest online marketplace also implements the Amazon Tax Exemption Program, which enables eligible buyers and organizations who make purchases on Amazon’s platform to be exempt from paying sales taxes. Amazon sellers registered under this program must accept and acknowledge tax exemptions requested by buyers under ATEP.
If you already know your nexus and how much sales tax to collect, your next step is to register for a seller’s permit so you can start collecting sales tax. Not all states require permits, but it’s best to check your local state website to see if they require one.
| 💡Each state has different sales tax compliance and paperwork requirements. |
Most states allow applications through an online process, so you can skip those long lines and hours of waiting at the revenue department.
There are different ways each state processes the remittance of sales taxes. For example, some states require you to do it monthly, and some allow for quarterly remittance. As a result, managing the collection and remittance of sales tax can be time-consuming and confusing.
To help you manage and pay taxes properly, you can:
The ecommerce market is rapidly growing day by day. However, it’s not enough that you know all the product trends to stay alive with the heavy competition. Other aspects of your business, like inventory, advertising, finance, and taxes, are also essential to keep your business on top.
We hope this blog on the overview of ecommerce taxes helps you create a strategy for running your business smoothly. If you need an extra hand to handle technical stuff like finances and taxes, you can find it here at Unloop.
We have professionals who are experts on everything about ecommerce. Bookkeeping, income tax, sales tax, and even strategizing plans for your business—we’ve got it all.
Book a call with us and take a step towards success!
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.