Wait, so if I sell widgets to people in 50 states from my little website, I might have to file and submit collected taxes for 50 states? That seems like a mountain of work for selling my crappy little widgets.
If Amazon does not collect the tax, and every small vendor needs to file for every micro-sale, this could have a massive negative effect on online commerce in general and particularly for Amazon, likely to see it's small vendors dropping like flies and undermining it's Get-Anything-On-Amazon approach
Great for the AMZN stockholders, but not so great for the ecosystem...
But if you have a physical presence in CO (or CA), then you have to collect it for all orders (no minimum). But CO and CA consider Amazon FBA warehouses to be an extension of your business.
So if you wanted to make it cheaper, just don't use Amazon's warehouses to store and ship goods from. Also a lot of states allow sales tax to be filed annually.
It's a whole lot of work to be legally compliant.
IMO it’s encumbent on the Fed to sweep all this away under interstate commerce and make compliance as close to a fully automated process as possible.
Step 1: use a SALT SaaS provider that handles your sales tax collection at point-of-sale.
Step 2: there is no Step 2. Seriously, there are a dozen providers that handle SALT POS taxes, including Amazon FBA and Shopify.
However, what's happening here is that Amazon is deemed to have created sufficient nexus for the sellers using FBA. Because Amazon is acting as an agent of the seller, and is storing the seller's goods in California, the seller is deemed to have nexus through their agent, Amazon. This is a long-standing interpretation of the law that has been upheld many times.
Generally, Amazon should have handled the collection of sales taxes for the sellers, but since it did not, the principal (the seller) is legally responsible for paying them.
That was the argument California used, but it was never tested in court and there were strong arguments against it. You're basically repeating California's legal opinion as fact.
Then, the Supreme Court ruled last year that nexus doesn't matter, states can tax outside retailers regardless. So many states passed new laws doing just that.
The question of whether inventory in FBA creates nexus is still relevant for back taxes, and it's possible that will go to court at some point, although it seems likely California will end up waiving back taxes.
They simply eliminated the physical nexus requirement of Quill. There are still (undefined) economic thresholds required for nexus for taxing out-of-state retailers.
If you sell $5 of stuff into a state, you aren't subject to sales tax collection in that state. If you sell $100,000 of stuff into a state, you are. Unfortunately, the exact threshold where you have economic nexus varies from state-to-state and not every state has yet updated their laws for Wayfair.
However, physical nexus still exists (it's "stronger" than economic nexus), and that is why California treats Amazon FBA inventory as giving rising to nexus. It doesn't matter that it has never been tested in court--it's been generally accepted law in the US for decades (predating Quill) and it would take a court ruling for it to be otherwise. (In fact, part of the Quill decision was premised on the fact the seller did not maintain an office, employees...or inventory...in South Dakota and thus had no physical connection to the state.)
The issue is there are arguments on both sides how to apply the general accepted law. Do you treat it as seller owned inventory, or do you treat it as consignment? Does commingled inventory belong to a seller, and if so, at what point does title transfer if the seller has not had a sale? If two people send inventory to Amazon, it's commingled, and Amazon stores one of the units in California, which seller has physical nexus?
Taking California's position on these legal questions may be the pragmatic approach if someone wants to avoid legal risk, but it's by no means clear that they're right under established law. You're entitled to your legal opinion, but so are others, and other tax lawyers have weighed in and believe California's argument is incorrect here. Given that the issue hasn't been decided in court and there are lawyers arguing both ways I don't think it's right to say that clearly one side is right.
Also, when California imposed a state sales/use tax collection obligation (effective April 1) on out-of-state sellers with more than $100,000 in sales or at least 200 transactions in the state in the current or preceding calendar year, it also required in-state and out-of-state sellers to collect and remit district sales/use tax in any district where they surpassed the $100,000 sales/200 transactions threshold.
Here's the clincher that has created a real headache for a lot of sellers. The law that was enacted April 25 retroactively supersedes the previous April 1 rule. So, as of April 1, the transaction threshold is eliminated, and the sales threshold is now increased to $500,000.
The new law also eliminates the need to track sales in each district. And, starting October 1, 2019, it requires marketplace facilitators to collect sales/use tax on behalf of third-party sellers.
To be fair, the changes adopted by the legislature should make sales tax compliance a bit simpler for in-state and out-of-state sellers alike. While many businesses are undoubtedly pleased with the new policy, the fact that California adopted one set of rules/requirements as of April 1, changed them weeks later (as of April 25), and set more changes for the not-too-distant future is frustrating.
More than a dozen states impose a sales tax collection obligation on marketplace facilitators (Amazon, Etsy, eBay, etc.). In addition to collecting and remitting tax on their own sales into the state, if they have any, marketplace facilitators will soon be responsible for collecting and remitting sales tax on all sales made through the marketplace in even more states. Most recently, Wyoming and California have joined the ranks; Virginia is close, which we expect to be on the books by the middle of this year. We anticipate every state to have a law like this on the books by Q1 of 2020.
Where I see a lot of confusion is from sellers who are struggling to understand economic nexus regulations that are based on reaching sales thresholds. Adding to the confusion, these thresholds vary from state-to-state.
If you'd like to learn more, our recent blog "How marketplace facilitator sales tax laws in different states affect marketplace sellers" covers this in depth. https://avlr.co/2VFKvCa Here’s an excerpt:
"Now that states are no longer prohibited from taxing remote sales, they’re looking for the most efficient ways to bring in remote sales tax revenue. Approximately 35 states have adopted economic nexus laws, which impose a sales tax collection obligation on businesses with significant economic activity in the state. Such economic nexus laws generally provide an exception for small sellers (defined differently in different states).
Many marketplace sellers qualify for these small seller exceptions, meaning they’re safe from the long arms of the tax authorities. But states that require marketplace facilitators to collect and remit sales tax on behalf of their sellers still reap revenue from those transactions. It’s a win-win for states, which is why we can expect to see marketplace facilitator sales tax laws proliferate.
It’s important to note that marketplace sellers aren’t necessarily freed from all responsibilities under these laws. In fact, these laws can complicate matters a bit because they change the rules. Ordinarily, businesses that don’t have nexus with a state (an obligation to collect sales tax) don’t have reporting requirements. That’s not the case with all marketplace facilitator sales tax laws, as you’ll see below."