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Sales tax compliance in 2022: Changes you need to know
More than 2,000 merchants joined us recently to discuss the fallout from South Dakota v. Wayfair.
Here are the biggest takeaways:
- We all have questions!
- In fact, there are more questions than answers as we publish this post. A lot of specifics still need to be determined.
- The first impact of the Supreme Court’s ruling will be felt on July 1 when some economic nexus laws go into effect that will impact ecommerce businesses.
Got questions? You’re not alone.
After reading through more than 1,600 comments from the webinar, we found a lot of the questions asked were very similar. So to try and help everyone understand what’s happening and how they’re impacted, we’ve compiled the top 30 most common questions below.
First we’ll answer the 20 most asked questions related to sales tax and this ruling, and then we’ll dive into the top 10 TaxJar-related questions.
Top 20 ruling-related questions from our webinar
What did the SCOTUS ruling change about sales tax?
- Skip to this discussion in our webinar
- Prior to this ruling, nexus was based on “physical presence.” By ruling in favor of South Dakota, The Supreme Court has decided physical presence is not required in order for a seller to be obligated to collect sales tax from buyers in a state. States can now declare that any seller with “economic nexus” is required to collect that state’s sales tax. This means that if you meet a certain state’s definition of economic nexus (for example, exceeding a gross sales amount OR meeting a transaction threshold for volume of sales) then you are now legally required to collect and remit sales tax to that state. Each state’s economic nexus laws are different, and some states have not even passed economic nexus laws yet. You can read more about economic nexus here.
Do I need to collect in all 50 states right now?
- Short answer, no. There’s only state sales tax in 45 of the states plus Washington D.C., so right off the bat, things are looking better than you thought, right?
- The important answer is that you ONLY need to collect where you have ‘nexus’ or a significant presence defined by that state (ie: in South Dakota they are defining significant as exceeding $100,000 in sales in South Dakota OR 200 transactions into South Dakota).
- Once you meet a state’s definition for having nexus in that state, then you are legally required to register for a sales tax permit, collect, and remit sales tax to that state.
- If you don’t have nexus in that state and don’t meet any of their thresholds for economic nexus or physical nexus, then you don’t need to collect or remit sales tax to that state. I encourage you to read more on understanding when to collect sales tax in our 101 guides.
What do I need to do to prepare?
Do states actually penalize sellers who are not sales tax compliant?
- Yes, states impose a variety of penalties if you are not sales tax compliant. Here’s an example of what happened recently in Texas.
- Skip to a related discussion of this in our webinar.
What states have economic nexus laws already on the books?
- Here’s our current list. We’ll keep this list updated as each new state passes additional legislation.
Just tell me, do I need to do anything today or can I wait?
- Skip to this section in the webinar
- As of the publishing date of this post, you don’t have to do anything immediately. But it’s time to start assessing where you may need to be compliant in the future.
- Choose a service to monitor your sales in every state across the US and see where you may be approaching economic nexus laws. TaxJar helps you do this in just a few clicks and we offer a free 30-day trial.
Does having economic nexus one year automatically mean I have economic nexus the follow year?
- It depends on the state and how they have defined significant presence, nexus, etc. For some states, you’ll need to renew your sales tax permit each year. In other states, your permit will automatically renew the following year unless you take action.
- In addition, some of the new economic nexus laws are actually based on your previous years sales, not the current year. For example, in Alabama, the threshold is defined as $250,000/year based on the previous calendar year’s sales. So you actually wouldn’t have economic nexus here until you’ve met that requirement the following year (this doesn’t take into consideration physical nexus, etc. which may trigger you to have to comply there sooner).
How do I register for a sales tax permit and can TaxJar do it for me?
- Skip to this part of the webinar
- Registering for a sales tax permit is free in most states. To get started, visit TaxJar’s DIY instructions for every state
- If you‘d like to have an expert register for you, visit TaxJar.com/register (~$100 each state not including state’s fees)
How do I set up sales tax collection on Amazon?
- Video & instructions on how to set this up within Seller Central
What is a Voluntary Disclosure Agreement (VDA)? Should I do a VDA?
- We talk all about Voluntary Disclosure Agreements in this post
How does this law affect drop-shippers?
What date should I use when registering?
Is every state going to pass an identical $100,000/200 transaction law like South Dakota passed?
- Skip to this question within our recorded webinar
- The Supreme Court did not rule that economic nexus needs to be set at $100,000/200 transactions, only that the South Dakota economic nexus law is legal. With that said, $100,000/200 transactions is the path of least resistance for any state looking to implement their own economic nexus law . Only time will tell how many states follow South Dakota’s lead and how many choose to set different economic nexus thresholds. As new laws are passed, we’ll update our economic nexus list.
I’m an international seller. Does this ruling impact me and do need to pay sales tax?
- Here’s what you should know as an international seller
- Skip to the discussion on international sellers in our webinar
I sell on Amazon. Will they take care of this for me or do they plan to start? Do I need to pay sales tax in all states that have an Amazon warehouse? Will Amazon take care of it for me?
- Skip to this conversation in the webinar today and also this part of the webinar
- Here’s a bit more on how inventory in an FBA warehouse can give you physical nexus
What is SST? Should I register with SST?
- Here’s some additional info on SST and the states where you can register as part of the SST project.
What is the impact of this ruling on resale certificates? What is a resale certificate?
- What is a resale certificate?
- Skip to the portion of the webinar where we talk about wholesale & exemptions
Does nexus apply to the specific channel or is it across all my channels? Do I have to collect sales tax on Shopify if I have nexus due to FBA?
- Skip to that part of the discussion in the webinar
- If one sales channel triggers nexus for you in a state, all your sales across all your channels is subject to sales tax in that state. Using the example above, nexus triggered by your Amazon FBA sales in a state would mean your Shopify sales in that state would also be subject to sales tax.
How does this affect Software as a Service (SaaS) and digital goods?
I’m a smaller seller. Compliance is starting to add up. How should I manage this so I don’t go out of business? Is there some kind of minimum revenue I need to make before I have to start worrying about sales tax?
- Skip to this discussion in our webinar
- Here’s the different approaches sellers take to sale tax compliance.
- Read more about some of the top sales tax myths here.
Top 10 TaxJar-related questions
I’m a brand new seller with none or very little sales. When should I start using TaxJar?
- Start by reading this article on when to register for a sales tax permit.
- Once you’ve registered and are collecting in the states where you’re required, take note of how long it’s taking you to complete your sales tax obligations. Is it hours every month? Is it just once a year? Is it a headache and you want to forget about it?
- The right time to start using a tool like TaxJar is when you’ve already started collecting and the process for reporting and filing is taking up too much of your time. The main benefit of our service is that we give you your time back.
- Once you’re spending more of your time on sales tax instead of spending that time on more profitable business activities is when you want to, as a smaller seller, make use of TaxJar.
What integrations does TaxJar offer?
- We offer one-click integrations to the most popular eCommerce providers out there, including Shopify, Magento, WooCommerce, Squarespace, Amazon, Walmart, eBay, Etsy, Square, and more. View them all here.
What does TaxJar cost?
- Our pricing is transparent, clear and as simple as we can make it. View it here. Basic plans start at just $17/month for an annual plan.
I know the taxability of certain items varies from state-to-state. Are product taxability rules impacted by this decision? When will TaxJar expand into my product taxability department?
- Skip to our discussion on product taxability in the webinar
- Some information on state-specific product taxability from our blog
- Information from TaxJar on the product tax codes that we currently support can be found here.
I heard there’s thousands of different tax jurisdictions in the US. How does that work and can TaxJar help me with all of them?
- Here’s a quick overview of how TaxJar works and how we can help you handle sales tax in all of these jurisdictions.
What are Marketplace Facilitator Laws and how does TaxJar handle them?
- Learn more about Walmart and why they’ve started collecting in accordance with these marketplace facilitator laws
- Read about Amazon and how they’ve begun to comply in states that have passed these laws
What states and countries does TaxJar cover?
- TaxJar provides our reporting, calculations, and filing service in every single US state. You can view the states we cover and information about each state here.
- As for the TaxJar API, for real-time sales tax calculations we also cover some countries in the EU in addition to Canada. You can find more information about the TaxJar API in our documentation here. (Note: We don’t currently support reporting or filing outside of the US).
Will TaxJar be able to tell me if I need to pay sales tax in a specific state based on my sales data?
- Yes. Once you connect to TaxJar, we’ll import your sales tax data. We’ll tell you exactly the states where you may have physical nexus due to your shipping information, and we’ll also tell you where you may have economic nexus according to the new laws that are coming soon (feature coming soon).
- You can currently view how many transactions you have in a single state by looking at the transactions view and exporting to CSV. We’re releasing a feature that will total this value for you automatically, without CSV export, very soon.
Where can I sign up for a free trial?
- Anywhere on www.taxjar.com. We’d love for you to give our software a try!
Have more you’d like to ask? Join the discussion the comments below. We’d love to hear from you.