A Taxing Topic: The State of Online Sales Taxes

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Each week, we publish a mishmash of ecommerce-related, insight-infused articles for your to smash through. Just as we collect business information across all of a merchant’s channels in a single place, we’re doing the same for ecommerce-related content from a variety of top tier content creators.

There’s a saying that only two things are certain in this world: death and taxes. But the latter, everyone’s favorite subject, is a little less certain when it comes to ecommerce. As the industry continues to expand its chunk of total retail sales, the subject of online taxes is getting more and more important, if not messy. This week’s mishmash is centered around exactly that; we’ve got a refresher of how online sales taxes currently work, some legislative updates on the table in Congress, and changes that could arrive in the not-so-distant future.

The State of Online Taxes

Given the election this year, you can expect to hear a lot about taxes. Tax rates, tax brackets, loopholes, deductions — it’s all complicated, and the situation is no less complex for e-retailers selling to consumers in a variety of regions, states, even districts. Practical Ecommerce lays out how online sales taxes currently work. The nexus, the state where you have a physical presence, employees, or third-party partners, is at the center of it all. That state(s) ultimately determines much of how your taxes will function, with some states having little regulation and others a whole heap of it. The article also contains a range of services out there you can use to automate your tax collection, like Taxjar, Avalara, and TaxCloud, so you don’t have to sweat the details.

Nixing the Nexus?

The importance of a nexus might be diminishing in the near future, though. Congress is returning from a summer vacation, and one House member is set to release a fresh proposal on how online sales taxes, especially those that occur across state lines, will function. The gist of his proposal is this: whenever an online sale is made, tax rules are set by the business’ state of operations, but the actual tax rate is determined by the state where the customer lives. Reception to the proposal is mixed, with many large-scale e-retailers like eBay against it, and omnichannel ones like Walmart in favor. Those who aren’t fans mostly prefer that states be allowed to tax incoming shipments by out-of-state merchants.

Congressional Concerns

But such legislation isn’t the first to be drafted up. The fate of two pieces of online sales tax legislation floating around in Congress — the Marketplace Fairness Act and the Remote Transactions Parity Act — may be decided in the coming months, and eBay is sounding the alarm. The upcoming lame-duck session of Congress, a session in limbo where newly-elected representatives have yet to begin their terms, presents the highest risk for a vote in both chambers of Congress, and, according to eBay, it’s likely that some vote will occur in the Senate. Whether successful legislation moves to the House for a vote is anyone’s guess, but federal action on online sales taxes seems to be getting nearer by the month.

Online Sales Tax in Action

Enough of this legislative tediousness — let’s hear some practical knowledge on how online sales taxes affect services e-retailers use. Fulfillment By Amazon (FBA), a coveted third-party logistics service that stores and ships products for e-retailers, is a great example. Exactly how do online taxes function when you’re working with a 3PL that ships products around the nation for you? Shopify has a fantastic guide that’s equipped with nexus explanations, how FBA influences your taxes, and a state-by-state list of tax guidelines.

Guiding Your Tax Needs

As if the plethora of tax rules out there wasn’t enough, some shopping carts and sales channels handle sales taxes in unique ways, making it that much more of a nuisance, especially for multichannel merchants. Fortunately, Taxjar has multiple guides on the ways specific channels, like Amazon, Woocommerce, or Square, present and apply online sales taxes to e-retailers. If that’s not enough, they also include general, tax-related factors to be aware of when running an online store, like licenses, and a ton of extremely useful, state-by-state information that ranges from tax rates to tax hotlines.