Your business should be organized on all fronts, but especially financially, if you hope to sell in the future. This means that you have to know when you might have possible exposure issues that decrease your chances of success in selling the business. Tying up loose ends will make your company that much more appealing to outside buyers. Knowing when and how to pay state and federal taxes plays into this.
Some people who sell on Amazon FBA have been reporting recently that they have received massive back tax bills from state level revenue agencies who argue that sales tax was never appropriately paid on their income. In fact, one Amazon FBA seller in Utah received a $200,000 tax bill from the state of Washington arguing that he had never remitted or collected sales tax from customers for purchases that went all the way back to 2011. He and other Amazon sellers might not be aware of the possibilities of significant tax bills.
This individual is paying it off at a rate of $2500 per month. These third-party sellers are being targeted for sales merchandize that is stored in Amazon warehouses, the agreements of some of which go back to 2010. Five states have begun efforts to move forward collecting billions of dollars in unpaid sales tax. Washington and California were the first state revenue agencies to start sending demand letters for back taxes in 2016, but Massachusetts followed suit in 2017. Minnesota and Wisconsin have also confirmed that they have efforts in place intending to move forward with similar measures.
As a result of this, the House Small Business Sub-committee will be hearing from Amazon sellers about how retailers have been impacted by the significant Supreme Court sales tax ruling that opened the opportunity for state’s taxing out of state businesses for those customers who provide products to customers in their own states.
While Amazon did collect taxes on the sales of its own products shipped from warehouses, this did not happen for third party sellers until state marketplace laws required this to happen. This means that a remote seller’s economic activity in the state could be reviewed in full by the state revenue agency in the wake of these new sales tax requirements. Many sellers are concerned that they might receive letters in the near future from additional states. These taxes involve marketplace sales that have been leveraged through the FBA or Fulfilment By Amazon program.
Fulfillment By Amazon is extremely popular among e-commerce sellers because it provides shipping, packaging and customer service for online merchants that number in the millions. Having inventory located in an Amazon warehouse, according to the sales tax laws in many states, means that the company technically has a physical presence in that state, giving rise to the requirement to remit and collect sales tax. However, many third-party sellers were not aware of this and therefore did not remit and collect.