Are you running an ecommerce store? Do you understand the proper sales tax bookkeeping for Amazon and Shopify accounts? One of the not-so-fun aspects of running an ecommerce business is sales tax collection.
You may find yourself asking, “Does Shopify pay sales tax?” or “Should I charge sales tax on Shopify?” Each ecommerce platform and state handles sales tax differently. However, most states don’t require you to file until a certain sales threshold is met, known as nexus.
Before you begin charging sales tax, it’s important you understand the basics of sales tax nexus. You may be surprised to find out that you don’t have a filing obligation in some states, saving you time and money.
What is Sales Tax Nexus?
Sales tax nexus is a term used to describe a business’s requirement to collect and remit sales tax within a particular state. Historically, Shopify accountants and Amazon accountants would only need to remit sales tax in the state that the business has a physical presence.
However, following the Wayfair vs North Dakota court case, ecommerce sales tax collection now encompasses all jurisdictions where the business sells to. This means that your Shopify or Amazon ecommerce business could be based in California but required to pay sales tax in New York if you make enough sales.
How Do States Determine Sales Tax Nexus?
The good news is that most states have thresholds that must be met before Shopify state sales tax needs to be collected. This varies by state but generally ranges between $100,000 and $250,000. If you are under the state’s threshold, you have a sales tax nexus and will not need to collect and remit tax.
Certain goods are also exempt from sales tax. It’s best to reach out to a Shopify CPA or an Amazon FBA CPA for state specifics, but prescriptions, medical devices, and certain clothing may not need to have sales tax charged. Understanding exempt goods can help you accurately set up your sales tax collection process.
As your ecommerce business begins to grow, it’s not uncommon to be required to pay sales tax in dozens of states. Maintaining compliance with state agencies can be tricky, which is why many sellers enlist the expert help of an ecommerce CPA.
What Should You Do if Sales Exceed Nexus?
Effective Amazon accounting services should be able to detect when you are nearing the nexus limit. This is done through consistent bookkeeping for Amazon businesses that properly report gross sales by state.
Once your Shopify CPA determines that you will be required to remit and pay sales tax in a state, you should begin the registration process. It’s important that your Amazon accountant or Shopify accountant registers your business before you begin collecting sales tax on your platforms. Collecting tax without the proper registration can land you with fines and penalties.
Amazon generally handles all the backend work on sales tax collection, while Shopify sellers will need to take additional steps to track sales. Regular Shopify accounting can help you monitor gross sales levels before any fees and discounts.
How Do Shopify and Amazon Handle Sales Tax?
Amazon and Shopify differ in their sales tax collection and remittance procedures. Amazon is considered a marketplace facilitator, which means that they collect and remit sales tax on your behalf. Amazon does charge a small fee for these services, but it can save you and your Amazon FBA CPA a great deal of work trying to decipher how much to collect and when to remit payments.
On the other hand, Shopify does not act as a marketplace facilitator. This means that the burden falls on you to accurately set up your sales tax collection process, file returns, and pay the corresponding amounts. This is why it’s beneficial to work with a Shopify accountant that can ensure you are collecting the right amounts on purchases and timely registering with new states when nexus is triggered.
Summary
Are you accurately filing and paying sales tax? Too often ecommerce sellers automatically set up sales tax collection without understanding the filing requirements and registration process. To avoid over-collecting or under-collecting sales tax, it’s important to contact an ecommerce CPA.
Not only can the right Shopify accounting and Amazon accounting services help you decipher when nexus is triggered, but you can ensure compliance with all state agencies. Regular ecommerce bookkeeping is especially important for Shopify sellers who have the burden of collecting, filing, and paying sales tax.
For more information on ecommerce sales tax, reach out to one of our team members today.
