One of the things that make or break an online store is finances, and therefore taxes.
If taxes are something that confuse you, don’t worry, we’re here to help.
I’m Wes from Printful.
And today I'll be answering a few questions about sales tax, including what it is, why
it's collected, and when and how to collect it.
I’ll also go over some common questions about drop shipping sales tax and sales tax
with Printful.
Joining me today are our friends at TaxJar, who will be lending their expertise and answering
some of these questions.
Hei, I’m Jennifer Clark from TaxJar.
I’m excited to join Printful today to explain some of the biggest concerns and pinpoints
around sales tax to help make things clearer for you.
And stick around until the end of the video – we're hosting an AMA in the comments down
below.
So, If you’ve got a question we didn’t cover, you can ask us in the comments for
the next 3 hours after this video goes live.
Finally, all the links we mention in is videos will be available in the description down
below.
What is tax and why is it important?
So, let's start with the basics.
What is tax?
Tax is a percentage of the sales price of a taxable product, put in place by the government.
The government uses this money to pay for public services, like schools and roads.
Sales tax is governed at the state level, which means each state gets to make its own
laws.
This means that each state collects sales tax a little differently.
Sales tax is a “consumption tax,” which means it's only charged when the end consumer
buys goods or services.
It's also known as a “pass-through tax,” because even though a business charges sales
tax, they don’t keep it.
Businesses are required to collect it and remit it - or pass it through - to the relevant
government.
This means that we at Printful are required to collect and remit sales tax on purchases
our customers make based on their retail price.
And you, our customer, might also be liable to collect and remit sales tax as an online
seller.
How do you know when to collect sales tax?
So, that leads to the obvious next question, how do you know when to collect sales tax?
You need to collect sales tax from sales in states where you have “sales tax nexus.”
Sales tax nexus is having a physical presence in or a meaningful connection to a state that
requires you to comply with their sales tax laws.
This means that you would need to collect and remit sales tax when someone from that
state makes a purchase.
These are a few common factors that create sales tax nexus:
1.
If you have a physical location
This includes a warehouse, office or even your kitchen table (home office).
1.
If you have employees or salespeople
This includes employees working remotely—you may have nexus where they work from.
Note that in some states, affiliates can also give you sales tax nexus.
1.
States you store inventory in
If you use Printful for print-on-demand dropshipping, our fulfillment centers don’t give you nexus.
However, if you are using Printful’s Warehousing and Fulfillment service, then you will have
nexus where you are storing it.
So, if you store products in our North Carolina warehouse, you will have nexus in NC.
1.
If you make enough sales in a state, in dollars or transactions
This is also referred to as economic nexus and has caused some confusion for a lot of
online sellers.
That's because, on June 21, 2018, the Supreme Court made a ruling in the case of South Dakota
v. Wayfair, overturning a previous decision and law known as Quill.
Quill established that state governments can only tax businesses who have a “physical
presence” in the state.
Now, states can tax remote sellers if they make enough in sales or transactions.
It was designed to level the playing field between brick and mortar stores and ecommerce
stores, so that both have to pay taxes.
Since this ruling is fairly new, the laws are changing rapidly, and each state has its
own threshold.
To keep up to date, we recommend following TaxJar’s blog post on economic nexus for
the latest information.
The lowest threshold for economic nexus at the date of recording is $100,000 in sales
or 100 transactions in Minnesota, so keep a lookout when approaching those numbers.
With all this information, you should now be able to tell which states you have sales
tax nexus in.
Marketplace facilitator laws Several states have also made laws around
marketplaces like Amazon, eBay, and Etsy.
These states, like Oklahoma and Washington, require marketplaces to collect and remit
sales tax on behalf of their third-party sellers’ transactions.
So what does that mean for you?
Any sales you make through these marketplaces to these states will be taxed for you, you
don’t need to do anything.
However, if you have nexus, you should keep a sales tax permit, as they only handle tax
on sales through the marketplace.
You still need to handle sales tax through other avenues.
If you don’t do any sales outside of those with the marketplace, you’re required you
to file a simple “zero return” saying so, or register for non-reporting sales tax
status.
You can keep up to date on marketplace facilitator laws at TaxJar’s blog post.
How do you collect and remit?
So, how do you actually collect and remit sales tax?
Step 1:
The first step is to check where you have sales tax nexus.
To help with this, TaxJar has a handy Sales and Transactions checker, which shows you
exactly where you have economic nexus.
It’s also important to note that international sellers may also have sales tax nexus, so
if you're outside of the US, you should check as well.
We recommend that international sellers who have, or are approaching nexus to get in touch
with a tax expert to help with their situation.
You can get more advice in our blog on international sellers, link in the description below
Step 2:
Then, you need to check if your products are taxable.
If you use Printful for print-on-demand, you can see which products are considered non-taxable
by some states in our FAQ, the link is in the description below.
If you use Warehousing and Fulfillment, you'll have to do your own research to see which
products are non-taxable.
Step 3:
The next step is to apply for a sales tax permit for each state you have nexus in.
You can’t collect sales tax until you have a permit.
The application process is different for every state.
You can find the full list of how to apply in each state on TaxJar’s blog post.
If you only have to apply for a sales tax permit in a few states, then you can do it
yourself by following the step by step instructions we provide.
If you have to apply for many states, then we recommend using one of our vetted sales
tax accountants to help you out.
Once this is done, you can add tax rates to your store.
You should check your ecommerce platforms resources to find out how.
Then, you can start collecting
Step 4:
If you use Printful, we also recommend you get a resale certificate, which is different
from a sales tax permit.
A resale certificate lets you buy products without paying sales tax if you plan to resell
them, meaning Printful won’t collect sales tax.
So, you should submit resale certificates to Printful for each state you charge sales
tax in, so we don't unnecessarily charge you tax.
In some states, your sales tax permit also works as your resale certificate, but other
states keep them as two separate documents.
You can find and fill out a resale certificate application form under the billing section
of your dashboard.
Choose your state, click “add certificate”, fill out the details, and choose any combination
of categories (Apparel, Home & living or Accessories) you wish to be exempt from.
Note that if you sell in a new category later on, you'll have to resubmit your certificate
to cover that category.
So, you can apply for categories you don't sell yet if you think you might later.
Fill out and sign the form, upload it, and click submit.
Once you submit your completed resale certificate, we'll review it in about 2 business days.
After it has been reviewed, we'll send an email to let you know if it's been approved
or rejected.
If it's denied, we'll let you know why so you can fix it and resubmit it.
If it's approved, you won’t be charged sales tax on orders shipping to that state.
However, you will be responsible for all taxes on your end.
Step 5:
Finally, when sales tax filing due date comes, you need to report how much sales tax you
collected.
To find out how to file a return for each state, we recommend you go to TaxJar’s map,
choose your state, and follow the guidelines there.
You need to determine how much sales tax you collected from buyers in not only the entire
state but in each county, city, and in other special taxing districts within that state.
This can sometimes be easy, like when there is only one rate for the whole state.
Other times, it can be really complex.
That’s why we created TaxJar.
TaxJar connects with all the shopping carts and marketplaces where you sell and then creates
a return-ready sales tax report just the way the state wants to see it.
It’s also important to remember to file a sales tax return every time you have a filing
due, even if you didn’t collect any sales, or there could be a hefty penalty.
That’s the basics of sales tax, so let's move on to how sales tax works in a drop shipping
relationship.
Drop Shipping + Sales Tax
Sales tax while drop shipping can be confusing as there are multiple sellers involved.
We’ve found the best way to explain this is through a diagram.
In this diagram, we have the drop shipper (in this case Printful), the seller (in this
case you), and the end customer (in this case, your customer).
Let’s start with you.
You need to collect sales tax from your end customer if you have nexus in their state.
Simple yes or no.
Now, we add the drop shipper, or on this case Printful to the equation.
If we don’t have nexus in the end customers state, then we don't charge you sales tax.
If Printful has nexus in the end customer’s state, we need to collect sales tax from you
unless you provide a resaletail certificate.
This doesn’t matter if you have nexus or not.
So, the key points to remember here are:
1.
Sales Tax is collected on “retail” purchases based on the final customer’s location
2.
Even if you don't have nexus, Printful still may need to collect sales tax from you as
we could have nexus which needs to be fulfilled.
3.
A resale certificate is needed when buying from Printful, otherwise, they will collect
sales tax.
And that's it!
So let's recap what we went over today.
Recap
Sales tax is a pass-through tax, collected by a seller and remitted to the government
to pay for public services.
We now understand what sales tax nexus is, and the steps you need to take to collect
and remit it.
And, we’ve gone over the common tax situations you will face when dealing with drop shipping.
Now, it’s over to you.
Ask any questions you have in the comments below!
TaxJar team will be joining us for the next few hours, so now's your chance to get some
answers from our expert.
Don't forget to head over to TaxJar for some extra help with your tax filing!