New Sales Tax Laws(Amazon Sales Tax Law)


Go To Great Panes, Kathryn Maloney ©2011
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

I’ve seen lots of folks posting about the new California sales tax law and the same type of law in a few other states (like IL, AR CT, NC…), and there seems to be a lot of confusion–not unlike the confusion back in 2008 when NY instituted a similar law (read more about that here).

Hopefully this post will help keep you from getting caught up in the hype & put you at ease a bit.

In short:

Now that so much of our commerce is internet-based and many businesses have representatives in other states that work for them online, the states are reworking the laws so the burden of collecting & remitting sales tax on taxable transactions isn’t on the buyer, but is on the seller.

Most of these laws have both a transaction-allowance that excludes most small businesses from this responsibility and a requirement of a new type of physical presence in a state.

(For example, you’d need to both ship $10,000 in goods to NY addresses in a year and you’d need to be affiliated with a NY-presence that you pay commissions or fees to, like Etsy, before you’d need to worry about this.)


Here’s the main points folks seem to be unclear on:

  • This isn’t about a new tax. It’s tax that is already owed to the state on taxable purchases.
  • This is only about regulating who is responsible for collecting/remitting the existing taxes due to the state on “remote sales” (mail order sales, internet sales, phone sales).
  • This doesn’t mean you need to collect your state’s sales tax from buyers who are having items shipped to an out of state address.
  • This doesn’t mean you need to collect a different state’s sales tax from buyers who are having items shipped to an out of state address unless you ship a whole lot there and you pay commissions/fees to someone/a business in that state.
  • These new Amazon*sales tax laws are about re-defining/clarifying what a “business nexus” in a state is, because the current definition leaves a loophole that allows big businesses like Amazon to avoid collecting sales tax on taxable transactions even though they have representatives within that state who are referring folks to their website and receiving a commission for doing so.

    When the seller doesn’t collect sales tax on taxable transactions & the buyer does not remit use tax on those purchases, then the states aren’t getting the money they are due & money they need to properly function. This has left many states in a lurch for funding.

    A business nexus is most often defined as having a place of business in a state or having a representative (person) in a state that solicits for your business, but with the advent of the internet and online affiliations & sales, the rules of the game are changing.

    If you have business nexus in a state, generally you are required to register in that state for sales tax purposes, and you also need to remit sales tax to the state (or collect & remit, depending on the state’s laws). Now big businesses won’t be able to skate around that law by claiming no physical presence when they do indeed have people or a business in a state who represents them even if just online or through an affiliated business.

    If you are just realizing you should be collecting sales tax for your state, this post will help you find the info you need on your state’s website:

    US: Sales Tax & Business Registration
    Links to Official Government Websites

    *Amazon is suing NY over their new 2008 sales tax law to try and keep from being required to collect NY sales tax and that’s where the reference to Amazon tax laws comes in. Amazon has affiliates in New York and NY has re-defined nexus to include affiliates located in NY, which means under the new law Amazon must collect & remit NY sales tax on NY-shipped orders because they also ship more than $10,000 a year to NY addresses.

    Other states that have added similar laws have had their affiliates removed by Amazon so that Amazon doesn’t have to collect sales tax for those states until the NY lawsuit is settled (rather than Amazon suing every state who has created a similar new legal definition for a business nexus).

    Go To Great Panes, Kathryn Maloney ©2011
    This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.