US Sales Tax for eCommerce businesses
Sales tax is essentially a small percentage of a sale that is added onto the sale by a retailer. Most sales taxes vary from state to state and may even differentiate further as most states allow local areas such as cities and counties to have their own sales tax. Sales tax is typically determined at a state level which makes it tricky, especially when you are managing an online retailer that is selling to customers from different states.
On June 21, 2018, the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. This ruling allows the state to begin taxing remote sales via their economic nexus laws and as this changes, we anticipate regulatory tightening towards the end of the 2020 year for Gooten.
Explain it like I’m five
Sales tax can be confusing and has a tendency to cause some headaches! We’re invested in your success, so don’t worry, we’re here to break it down with a scenario so that it might be easier for you to understand.
Let’s jump into it. Say we have Rob the Retailer selling a t-shirt to Billy the Buyer. Rob doesn’t necessarily have the t-shirts in his own stock, so he uses Gooten to buy the t-shirt and deliver the t-shirt to Billy.
In this scenario, Rob the Retailer pays Gooten for the t-shirt and then Billy the Buyer pays Rob. But the real question is, who is charging the sales tax? Let’s work out some instances to figure out who charges the sales tax.
It is also important to note that someone in this process is required to collect sales tax. It may be Rob the Retailer, Gooten, or it could be both.
Instance 1 - Rob the Retailer will collect sales tax directly from Billy the Buyer
First, let’s understand sales tax nexus. Sales tax nexus is when your business has a connection to state. For most online retailers, they would have an economic nexus that connects them to a state. An economic nexus is making a certain amount of sales (dollar amount threshold) within a state.
Billy the Buyer is in a state where Rob the Retailer has sales tax nexus. Here, Rob is required by the government to collect sales tax from Billy. If Rob does not have sales tax nexus in Billy’s ship-to state, then Rob isn’t required to collect sales tax from Billy.
Instance 2 - Gooten will collect the sales tax directly from Rob the Retailer
Gooten has sales tax nexus in the state where Billy the Buyer is located in. Since Gooten is drop shipping the product directly to Billy the Buyer at his shipping address, Gooten is required to charge sales tax from the buyer, Rob the Retailer, if Billy’s ship-to address is located in a state where Gooten has sales tax nexus.
Instance 3 - Rob the Retailer will provide Gooten with a Reseller Certificate
Let’s give a little context. A reseller certificate essentially allows a retailer to buy products to resell without having to pay the sales tax on those products.
In this instance, Rob the Retailer gives proof (reseller certificate) to Gooten which shows that Gooten does not need to collect sales tax from him since Rob is also a retailer. Even if Gooten has sales tax nexus in the state where Billy the Buyer is located, Gooten will not collect sales tax from Rob as long as Rob provides the reseller certificate.
So now that we have an understanding, we’re aiming to help you avoid Instance 2 and achieve Instance 3 by partnering with Avalara.
Who is Avalara?
Avalara is team of tax experts that provides a sales tax calculation and compliance platform that assists in business tax compliance. Avalara provides CertCapture which is a management tool that creates, validates, stores, and manages sales tax exemption and reseller certificates.
Why are we partnering with Avalara?
Currently, Gooten does not charge a sales tax to any of our merchant partners but with these tightening regulations, Gooten will begin to charge a sales tax to all merchant partners for each order in jurisdictions where they have crossed applicable sales tax thresholds. Gooten merchants that are registered or become registered as a reseller (with a valid reseller certificate) will not be charged a sales tax.
We’d like to make it clear that we are not tax experts, so we are partnering with Avalara to provide our merchant partners (you) with assistance via CertCapture to ensure you provide accurate and complete reseller certification information so that we will not have to charge you sales tax. Avalara’s solutions provide us the ability to automate sales tax compliance.
What should you expect as a partner?
All merchant partners (US and non-US) who sell products within the US are subject to sales tax and will be charged a sales tax on orders unless you join Avalara and get certified as a reseller via the CertCapture platform. If you are properly registered to collect sales tax from your customers at checkout, the reseller process with Avalara will be very organized and straightforward.
All current and existing partners will be receiving an email from Avalara that will invite them to join the CertCapture platform.
Once you are signed up on the CertCapture platform, you will simply need to provide your reseller certification information in CertCapture.
Gooten is essentially collecting your registration information so that we can certify you are a reseller, collecting and remitting sales tax when you charge your customers.
Once you’ve provided your reseller certification information into CertCapture, Gooten will essentially pull the data from CertCapture to validate that you are a reseller and you will not be charged sales tax for any orders shipped to jurisdictions in which you are certified as a reseller.
We highly recommend you to utilize Avalara’s resources as they will be able to help guide you through the process in terms of providing your reseller certification information or answering any of your tax-related questions.
- For general sales tax related questions, please reach out to Avalara: Avalara's support
- Avalara's live online chat: Online chat