29
Nov

Sales Tax Compliance Budgeting Checklist for Amazon.com FBA Sellers

Running a profitable business requires meticulous detail with accounting, budgeting, and managing cash flow. Improper management of your sales tax requirements could not only destroy your profits, but also your entire business with unnecessary past sales tax, penalties, interest, and audit notices.  It is a must to better understand all the costs involved with sales tax compliance.

As an Amazon FBA seller, your stock/inventory will create nexus in the FBA states which will require several sales tax compliance steps. There are a lot of steps that factor into sales tax compliance, besides collecting and remitting sales tax.

Here is a comprehensive checklist of the services, support and range of fees required for complete compliance as an Amazon FBA seller. Not only is it important to understand the upfront costs for compliance, but also the ongoing and annual costs as well.

In the big picture, these are costs of doing business, and will help you build a stronger overall brand and company for the long term.

The Services that are Recommended for both U.S. and Foreign Sellers on Amazon.com FBA:

U.S. Amazon.com FBA Sellers:

  • Behind on Sales Tax Evaluation
  • Sales Tax Permits in Each FBA State*
  • Remitting Sales Tax (filing sales tax returns with each state)
  • Foreign Qualification/Registration***
  • State Tax Returns (beyond your home state)

Foreign Amazon.com FBA Sellers (add to the above list):

  • FEIN/EIN/Tax ID Number with the IRS**
  • S. Mail & Address Service***
  • S. Bank Account****
  • Federal U.S. Tax Return*****

Now that you have the list of services and support required for overall sales tax compliance, here is the range of expected fees to help you budget annually:

 

Upfront Fees:

Behind on Sales Tax Evaluation:

  • $200-$400 per hour for a 1- to 5-hour evaluation process for Sales and Local Tax (SALT) expert evaluation.
  • $597.00 for SalesTaxSystem.com annual membership with support, which includes DIY steps to determine how much you owe in past sales tax, the evaluation of the best 3-4 strategies to move forward, and the strategies to avoid.

Sales Tax Permits (per FBA State):

  • $75 per State as a Sales Tax System Member (plus state fees- currently up to $202)
  • $0 DIY as a Sales Tax System Member with our step-by-step process.
  • $0 DIY by calling each state and walking through their forms and processes.

Remitting Sales Tax

  • $20- $100 per month to pull your sales data and organize (based upon the number of transactions).
  • $20-$50 to file a state sales tax return. Price is closer to $20-$30, but without a U.S. bank account to do an ACH for foreign sellers, closer to $50 per return.

Foreign Qualification/Registration: (potentially per FBA State):

  • $150-$400 per hour for the evaluation and strategy to determine which states you need to foreign qualify.
    • $0 as a Sales Tax System Member.
  • $100-$450 (depends upon if DIY or DFY) per state to foreign qualify/register in each state. Here is an overview of all the steps involved:
    • Determining if you are required to foreign qualify (based upon legal entity and taxation type and income nexus rules)
    • Checking your name for availability within the state
    • Obtain a Certificate of Good Standing from your home state/country (depending upon which state you are registering).
    • Registered Agent Service for 12 months (the contact point if your company is sued in that state).
    • Copy of Articles of Formation.
    • Complete and Submit the Forms to Foreign Register/Qualify into the state
    • State Fees are Separate, plus any additional franchise tax fees or reports.
  • Initial Reports. Some states do require additional steps after you foreign qualify or register. Fees will come into play and support is required beyond the state fees that vary based upon state and entity type.

 

Foreign Amazon.com FBA Sellers Upfront Fees:

FEIN/EIN/Tax ID Number with the IRS

  • $0 on your own to fill out the SS4 application and call the IRS with the correct information
  • $250 service to obtain your EIN correctly via the IRS.

U.S. Mail & Address Service

  • $95-$200 per month for a real U.S. address service and mail scanning service. This is important when you apply for sales tax permits or any other state or federal correspondence to make sure your mail is received.

U.S. Bank Account Service

  • $0-$497.00 to open your own U.S. Bank Account. If you are opening a personal account, you may do this on your own. If you are opening a bank account for a US entity, support is recommended. A U.S. bank account is important for companies to remit sales tax automatically from an ACH (direct withdrawal from your U.S. account). If you have no U.S. bank account, you will be paying close to $50 per return to remit sales tax per month with a company that allows you to wire the funds for sales tax to them.

Federal U.S. Tax Return

  • $400 + per hour to consult with a U.S. tax attorney
  • $0 to $2,500 to file the appropriate U.S. federal tax returns and the matching up with a foreign tax treaty. A return is required even if you are protected by a foreign tax treaty and no U.S. federal tax is required to be paid.
    • Keep in mind after you obtain an EIN, you will be in the IRS system and a return is expected the following year, even if no U.S. tax is owed.

Annual Fees:

 Sales Tax Permits (as more are added or your stock moves to new FBA States):

  • $75 per State as a Sales Tax System Member (plus state fees- currently up to $202)
  • $0 DIY as a Sales Tax System Member with our step-by-step process).
  • $0 DIY by calling each state and walking through their forms and process.

Remitting Sales Tax:

  • $20- $100 per month to pull and organize your sales data (based upon the number of transactions).
  • $20-$50 to file a state sales tax return. Price is closer to $20-$30, but without a U.S. bank account to do an ACH for foreign sellers, closer to $50 per return.

Annual Registered Agent Service:

  • $100 to $235 per year, per state. A registered agent is the contact point, if your U.S. company is sued. A registered agent will accept service of process.

Annual State Report Filing Service:

  • $0 to $150 per year, per state. Each state has some type of annual list, report…that is due and state annual fees are separate.

Foreign Qualification/Registration: (potentially per FBA State):

  • This may come into play if you are adding more sales tax permits in more FBA states. Generally, most FBA sellers will have this expense out of the way in the first year because they are likely registered in most FBA states; but, keep in mind Amazon is adding more.
  • $150-$400 per hour for the evaluation and strategy to determine which states you need to foreign qualify.
    • $0 with a Sales Tax System Member.
  • $100-$450 (depends upon if DIY or DFY) per state to foreign qualify/register in each state. Here is an overview of all the steps involved:

 State Corporate or Franchise Tax Return (potentially per FBA state) 

  • $0 DIY (You may file your own Texas Franchise Tax Return or Nevada Commerce Tax Returns; but for a full state corporation or partnership return, a CPA/tax firm is recommended).
  • $250-$800 per state corporate tax return (depending on the level and skill of the CPA or tax firm to file tax returns in multiple states).

 

Foreign Amazon.com FBA Sellers Annual Fees:

U.S. Mail & Address Service

  • $95-$200 per month for a real U.S. address service and mail scanning service. This is important when you apply for sales tax permits (or any other state or federal correspondence), to make sure your mail is received.

Federal U.S. Tax Return

  • $400+ per hour to consult with a U.S. tax attorney
  • $0 to $2,500 to file the appropriate U.S. federal tax returns and the matching up with a foreign tax treaty. A return is required even if you are protected by a foreign tax treaty and no U.S. federal tax is required to be paid.
    • Keep in mind after you obtain an EIN, you will be in the IRS system and a return is expected the following year, even if no U.S. tax is owed.

These above services and support fees fall into three main categories and skill sets:

  1. U.S. entity formation and foreign qualification/registration.
  2. Applying for sales tax permits and fully understanding the steps before and after applying (before remitting sales tax, the easy part with today’s software).
  3. Filing of State and Federal tax returns.

As you can see, the fees for sales tax compliance are much more than just remitting sales tax, and this does not take into account being behind on sales tax and owing past sales tax, plus penalties and interest. Add to this situation past sales tax returns and you may have a big out-of-pocket expense just to get “caught up” with sales tax compliance moving forward.

Unfortunately, most Amazon FBA sellers without this information and resources will not likely have the cash flow or resources to survive such a level of state audits.

Your business now has the correct information and steps. Now that you have the comprehensive list, you may take the steps for complete sales tax compliance. You will be in a much better position to determine your current and future profits. You will be able to now run your business without having the fear of constantly looking over your shoulder for the next big state sales tax audit or lien.

 

*Colorado, Georgia, Massachusetts, and Michigan* are the most recent FBA States (North Carolina, New York and Utah are expected to open soon).   Now there are 25 FBA states, less 2 without sales tax = 23 FBA states with sales tax plus Michigan. Delivery of stock by Amazon’s Flex Delivery creates nexus in the state of Michigan

** FEIN/EIN/Tax ID Number with the IRS. The EIN is required in order to apply for sales tax permits at the state level.

*** U.S. Mail & Address Service. When applying for sales tax permits, many times with a foreign address, the states do not apply the correct postage or address the envelope with the foreign address correctly, which means you may never receive it. Best to use a U.S. address with a scanning service, along with a permit service. Here is an overview of NCP’s address service: http://www.nvinc.com/pdf/nevadabusinessaddress.pdf

**** U.S. Bank Account. A U.S. entity is required, plus travel to the U.S. Services like WorldFirst and Payoneer are not able to do an ACH to remit sales tax.  Here is an overview of NCP’s banking service: http://www.nvinc.com/pdf/usbanking.pdf

***** Even with a U.S. tax treaty with your country (see the list here https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z) a protective U.S. return is recommended.

 

 

About the Author

Scott Letourneau is the founder of NCP and Sales Tax System. His companies have over 20 years of experience with entity formation and foreign qualification steps, and over 3 years of experience with applying for thousands of sales tax permits for Amazon.com FBA sellers. This has led to direct, firsthand experience with what states are looking for in terms of foreign qualification and state tax returns. NCP and Sales Tax System provide complete services for Amazon.com FBA sellers, and are partnered with the best professionals on all the steps listed in this article to provide you a one stop-shop experience.

 

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