In 2018 the US Supreme Court changed the rules for collecting sales tax. If your business has a website and engages in internet based out-of-state sales, you could be exposed to new laws requiring you to register, collect, and pay sales tax in those states.
Most states have passed laws stating that if you sell more than $100,000 of products or services
OR more than 200 transactions of any dollar amount, you are subject to their rules. Failure to follow their rules could essentially bankrupt your company in a few years with penalties.
Fox Tax does not monitor sales volumes or the number of transactions by state and does not register or file sales tax returns for you when we prepare your income tax returns. It is imperative if you have a website selling products or services, or you offer sales across state lines, that you familiarize your self with these rules and protect yourself and your company. Fox Tax can recommend
Tax Jar as one resource to help you, but again, you need to take action on this issue because it is not part of your income tax preparation.
With over 9,000 separate state and local taxing jurisdictions in the United States our concern for your company’s exposure to these rules forced us to alert you to the problem via this special alert letter. Please act sooner rather than later, we cannot over-emphasize the importance of compliance with these rules. If you think you are exceeding $100,000 in sales or over 200 separate sales within one other state (outside of your resident state), we can offer some hourly consulting* to review and discuss your options to register and file reports with those states. Just let us know if/when you think you need to do so!
We also recommend that you contact your elected Federal officials and alert them to the need for a small business exemption with a threshold of $10 million in sales. Otherwise, the costs of compliance could overshadow the revenues you generate from out of state sales.
NOTE for Esty Sellers or Sales from 3rd party sites: Before panicking about your sales tax bills, please note that many 3rd party sites, including Etsy, are now collecting and paying sales tax for its wholesalers on many sales. We suggest you test your sites and check to see if a) sales tax is being calculated for your customers and b) if that tax is being deposited into your bank OR kept by the 3rd party website.
Etsy has an article here with more information on what states they are collecting/filing for you. Fox Tax can't give you web development advice, but keep in mind that some platforms are 3rd party resellers (meaning you are a wholesaler and NOT responsible for sales tax) and others are just shopping carts that process payments for you (you MAY have sales tax issues here because you sell directly to final customers). Both may appear similar and have options to charge sales tax, but only one may be submitting that tax to the local states. It's up to you to understand which is a Reseller and which is a Payment Processor. When we discuss those thresholds above of 200 unique sales, they would need to be your own sales directly to customers, NOT sales through resellers. So if Etsy is collecting and submitting tax, those would NOT count towards your 200 sales in said state (those would be Etsy's sales as your reseller).
We hope this helps. Please look at info on Etsy site and TaxJar and if you still have questions, contact us if you still need help/consulting.*
Thanks!
Alyssa, Mark and the Fox Tax Crew
