In this new guest blog Avalara, a specialty solution provider that offers sales tax solutions for Marketplace sellers, explains the importance of knowing the ins and outs of sales tax and how they can help. Learn more about how Avalara can help you get your tax compliance right by clicking here.
4 Things Marketplace Sellers Should Know About Tax Regulations
Online shopping is booming, and businesses of all sizes — from mom-and-pop shops to big-box stores — are turning to the internet for a much-needed boost in sales. Your new revenue stream from an online marketplace may also mean new sales tax obligations for you and your business.
Online shopping is the way of the future
Online shopping is more than just convenient for customers. It has become an integral part of everyday life, and a sign of what retail routines will look like in the years to come. Online sales set records in 2020, and online shopping is going to be an even bigger part of our lives going forward.
A report by the U.S. Department of Commerce shows that eCommerce sales increased by over 30% between the first and second quarters of 2020. That’s enough for eCommerce to make up for more than 16% of all sales in the United States.
These gains in eCommerce sales come as good news to businesses across the country. To gain access to an even larger audience, many retail businesses are turning to online marketplaces, like Walmart Marketplace, to help them through these uncertain times.
Why should marketplace sellers think about sales tax now?
Making the move to online sales also comes with a new set of responsibilities. Chief among them are sales tax requirements.
Until recently, marketplace sellers were only liable for sales tax in states and jurisdictions where they had a physical or otherwise tangible presence. However, a recent 2018 landmark ruling established new requirements for remote sellers (businesses that sell outside of states where they have a physical location or an employee presence). Now, these sellers must collect and remit sales tax based on economic activity (also known as economic nexus), as well as sales tax based on physical presence.
In addition to this legislation, states began instituting marketplace facilitator laws as early as 2017. These are laws requiring a facilitator to collect and remit sales tax for its sellers.
Facilitator laws vary state by state in how they’re applied. This makes it harder for sellers to determine where they should remit their taxes and how to pay them.
Luckily, setting up economic nexus is a breeze with Walmart Marketplace and integration with Avalara. Read on to find out what you need to know to set up your nexus and expand your sales footprint across the country.
What steps must sellers take to stay in compliance?
As sellers expand through multichannel retail, understanding how to track, measure, and report sales tax is crucial to the success of your business. Walmart Marketplace can help you collect and remit sales tax, but you may still need help knowing where you owe sales tax and how to report it.
In some states, you may still have to file a sales tax return, even if your marketplace collects and remits sales tax for you. Here’s what you need to know to make the most of your marketplace and stay on top of sales tax.
1 Determine where you’ve triggered nexus for sales tax
It starts by knowing where you’re obligated to collect sales tax in the first place. Depending on your amount of business, collecting sales tax may be required in some states but not in others.
In some states, Walmart Marketplace collects and remits sales tax for the seller. In others, this obligation may fall on you. It’s another reason why each seller must determine where and when to collect and remit sales tax and set up their marketplace profile accordingly.
This is also why it’s so important for sellers to keep a close watch on their business activities to determine if they’ve triggered economic nexus in a state. A sales tax solution from Avalara can allow you to track nexus in different states and receive alerts when you’re approaching nexus in new territories.
Once you know where and when you’ve triggered nexus, you’re better prepared to set up the tax nexus in Walmart Marketplace.
2 Register your business to collect and remit sales tax
Now that you’ve determined where you have sales tax obligations (or triggered nexus in a state), it’s time to register your business. Just like the laws themselves, the forms and processes to do this differ for each state.
When you work with an end-to-end sales tax solution, you can let Avalara handle the preparations and filing for sales tax registration with only a single form.
Depending on where and how a seller does business, you may not have to register at all. However, it’s always better to be safe than sorry when it comes to sales tax.
3 Calculate the correct sales tax amount
You know where to collect sales tax and you’ve registered your business, now it’s time to calculate the amount being taxed. Charging the correct amount is imperative for more than maintaining tax compliance, it’s also important for keeping your customers happy.
Sales tax rates vary greatly between different jurisdictions. This can make it difficult to be sure you’re charging the right amount. Thankfully, Walmart automatically calculates and collects sales tax on your behalf.
If you’re curious about tax rates in other states your integrated sales tax software can keep you up to date with the latest sales tax rates and rules for more than 13,000 U.S. tax jurisdictions.
4 Remit sales tax and file your return if necessary
Walmart Marketplace will calculate and collect sales tax for you. The seller merely completes the setup, and Walmart collects and remits your sales tax directly to the proper tax authority or to the seller, if applicable.
Please keep in mind that just because your marketplace collects and remits the sales tax in most states, you don’t have to file a return. Integrated sales tax software like Avalara AvaTax can track your marketplace sales for you and create a separate report.
By collecting all your marketplace sales in one report, AvaTax can exclude those transactions from your taxable sales. This helps keep you from paying tax that has already been remitted by your marketplace and potentially overpaying on your returns.
Sales tax automation is your stress-free solution
Clearly, there are a lot of moving parts when it comes to registering, collecting, remitting, and reporting sales tax. Despite how complicated it may seem, it’s crucial for marketplace sellers to get it right.
Avalara, a leader in automated tax compliance solutions, has the technology and the know-how to guide both marketplace facilitators and marketplace sellers through the complicated sales tax process.
When it comes to simplifying your ecommerce setup, trust Avalara to help you handle sales tax so you can focus on your business. Visit Avalara online to learn more about sales tax requirements, and how you can keep your online marketplace sales in compliance.
This is a guest post by Ben Pittard, Marketing Writer at Avalara. He is committed to demystifying the language of tax compliance for everyone from business owners to tax professionals.