We have been working with Amazon sellers in the UK for the past few years and we have heard many questions about sales tax and income tax. We have already written a post on income tax compliance before and this post gives you an overview of sales tax compliance. Some questions below are picked up from Tamebay and Amazon forum.
Does UK seller need to collect Sales Tax ?
Any company selling as an FBA retailer in the U.S. will need to collect and remit sales tax to the states where their inventory is located/sold. An FEIN is required in order to obtain your necessary sales tax permits.
What is FEIN ? Is it required for non- US companies ?
Non-Resident Company must procure a U.S. FEIN (Federal Employer Identification Number) from the IRS (Internal Revenue Service) using form SS4. All foreign entities must have a U.S. FEIN in order to apply for sales tax permits from the States. This FEIN number will also be used on the company’s U.S. Federal tax return.
Beginning in January of 2014, the IRS canned that procedure. Now a company of any type owned by a nonresident alien gets an EIN for the company by one of the following two methods:
Easy Way: If the nonresident alien has an IRS issued International Taxpayer Identification Number (ITIN), the nonresident alien can obtain the EIN in a 5 – 10 minute data entry session using the IRS’ online EIN wizard. After submitting all of the information the website will display the EIN. Be sure to print the page with the EIN and keep it in a safe place.
Hard Way: If the nonresident alien does not have an ITIN then he or she must complete and sign an IRS form SS-4 and fax or mail it to the IRS. Faxing the SS-4 to the IRS is the better method because the IRS will fax the EIN to the applicant in approximately four business days vs. three to four weeks if the SS-4 is mailed to the IRS. Prepare, sign and fax the IRS form SS-4 to the IRS at 859-669-5760.
Do we need US bank account to open Amazon Account ?
While a U.S. bank account is not mandatory, it is highly recommended. Monies from Amazon will hit a U.S. bank account within hours, as opposed to the days it can take to hit a foreign bank. Also, many States cannot process electronic payments from foreign banks, so you would not be able to electronically remit your collected sales tax. A $1,000.00 deposit into the new account is the required minimum; but to waive monthly fees, the recommended initial deposit is $5000.00. (You must have an FEIN before you can apply for a U.S. bank account.)
Getting a US bank account as a foreign seller can be difficult and will often require that they travel to the US to do it. Next time you go travel to the US you should build this into your schedule.
Better alternative is open a US$ collection account with Payoneer that are physically located in USA, which you can register on Amazon Seller Central. When Amazon pay your sales revenue, they send US$ into your segregated Payoneer collection account instead of converting the US$ into Sterling automatically and depositing into your nominated bank account. Payoneer also provide collection accounts in Sterling, Euros, Japanese Yen & Chinese Renminbi – which can be used for marketplaces that transact in these currencies.
Lets say that my goods are stored in Amazon’s FBA warehouse in CA….now I make a sale via FBA where my item from CA is sold NY…Do I charge Sales tax at the CA or NY rate?…and then submit that tax to the NY tax authorities?
You would charge sales tax based on where the item is shipped to if and only if you have sales tax nexus in the state. In the above example, if you did not have inventory in New York you would NOT have to collect tax there. Let’s look at a few more examples:
Inventory in CA and shipping to NY (no inventory): Do not collect sales tax
Inventory in CA and shipping to CA: Collect sales tax with CA rate
Shipping inventory from California to NY where you have inventory: Collect tax at NY rate
Does this mean that if I store goods in FBA warehouses in USA, in order to reach the whole US market I would need to register with each individual state (who have their own respective sales tax rate) and submit sales tax returns to each? 
You’d only “have” to collect in the states where your inventory is being stored. By the way, when you sign up for a free Taxify trial it will show you where your inventory is being stored.
Do I just collect sales tax in the state where my good are being stored in regardless of which state the customer is based in?
A tax attorney would probably tell you that “yes” you should be collecting and remitting sales tax in each state. On that note: ensure that you check in with someone qualified before you make any important business decisions.
Most business will perform a risk/benefit analysis. For example: I also have my own Amazon FBA business however I do not have a sales tax permit in each and every state that Amazon holds my inventory. It would cost me too much time and money and I’ve personally decided that I will come clean with voluntary disclosures at a later time when I’m big enough. I DO collect and remit in my home state and will be collecting and remitting in the states that are the most likely to audit me.
This a business decision that I have personally made for myself and each of your sellers will also need to make a similar decision. Often times it costs too much money to become compliant and isn’t worth it – however if you have large expansion plans it would make a lot of sense to get it cleaned up early on rather than paying a lot to fix it later.
How to record sales tax on each state? Is there easier solution?
If you are an Amazon FBA seller Amazon will handle this for you. You just need to set the product tax code when you do your inventory upload OR set a default tax code to be used for all of your products. I am writing an e-book that walks people through this process.
Do we need US based accountant to submit sales tax ?
States vary on this. Some require it and some do not. It will make things a lot easier.
Is there any software that automatically records are sales tax ?
Yep – Taxify.
If Amazon moves our stock from one ware house to another, how do we know that ?
When you sign up for a free trial of Taxify you can see where your inventory is being stored.
Do we pay sales tax in every individual USA state? It sounds so complicated and undoable.
See explanation above. There is the “right way” and there is how most businesses look at the problem.
On eBay where I also sell they actively encourage you to expand to their .com site, advertising services that will do it for you automatically without any mention of taxes or registering with IRS etc.
If you are simply selling products on eBay you wouldn’t inherently owe sales tax in the states you are shipping products. You would only owe sales tax if you have inventory there, employees there, or other triggering activities. Now if you’re saying that you ship the product to eBay and they do the shipping and marketing of it then yes that would definitely create sales tax nexus.
Etsy.com only has one site that you sign up for. UK customers see prices in GDP but it’s the same admin for all sellers. What would the situation be there you think?
Same scenario – you only owe sales tax if you have sales tax nexus in the state.
Let’s say you ONLY sold on etsy and you were shipping from the UK to US based customers and all of your inventory, employees (EVERYTHING) was in the UK. You wouldn’t owe sales tax in the US.
Would you still be trying to pay Sales Tax in USA if you were sending all your stock out from Canada yourself?
Not unless you have a sales tax obligation due to inventory or other reasons in the US.
Sales Tax our LTD haven’t paid any since I started FBA in the USA, so I understand that our company should have paid this, do I back date to 2014 to do this?
You will need to pay sales tax back to the day you first had inventory in that particular state. That may be 2014, or it may be later. The biggest thing to be careful of is going in to register for a state permit and saying your first sale was in 2017 (if it wasn’t) and then claiming a ton of sales into the state right away. That is a red flag for the state and they will say “hmmmmm this guy started business here and all of the sudden has a ton of sales … seems suspicious. They probably had sales before 2017 that they owe tax on too and aren’t saying anything about it.”) and boom, you’ll get audited. Happens all of the time. So, make sure that your “start date” is the same as when it actually was.
You should calculate how much you’ll owe with a voluntary disclosure agreement BEFORE you approach the state about any of this because it will impact your cash flow. We have a guide on this that we will be releasing in the coming weeks.
In above situation what would my next step ? Do I ring IRS and get an EIN from them ? Create accounts in all states that are recommended by software and then submit for previous period.
Regarding getting an EIN, see notes above for the answer. Yes you will need to contact the IRS for an EIN.
Whether or not you create accounts in all states that you have nexus in is a personal business decision. Let’s say that you owe $20 in sales tax in a state and you haven’t been collecting tax there. Maybe you decide that it would cost you too much time and effort to get compliant in that state so you ignore it until a future date. In the future, you will be liable for the unpaid tax PLUS penalties PLUS interest. Some people decide to go this route.
Personally (I just started an Amazon business) I think it is MUCH better to get registered for sales tax permits and begin collecting and remitting sales tax everywhere I have nexus. That way I won’t have to worry about my future cash flows.
We hope this helps you understand how US tax system works. This blog post has been produced in collaboration with Alex, product manager at US based sale tax software, taxify. We work with tax advisors and provide you tax advice to get you started. Simply fill out the form below and we will schedule a time to discuss your individual case in detail.
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