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Make Sales Tax Payments Easier With TaxJar.com

TaxJar imageAs long-time readers of this blog know, I pay sales tax in 10 states right now with two more in the works. I’ve had a lot of challenges along the way and big-time gripes with Amazon.com for how little help they’ve given their FBA sellers for this important topic. Their super big sellers have bookkeepers and expensive technology to do all that for them. We small fry are on our own.  This week I thought I’d share what I’ve learned to hopefully make your experience better.

First, to recap, this is an advanced issue. All new sellers file this blog post away until later, OK? For the first year or so I didn’t have a sales tax certificate and I paid sales tax as I bought my inventory. I didn’t pay sales tax to Texas or any other state. Once I got my sales tax certificate, I paid tax to the state of Texas on sales in Texas.  A couple of years ago, the winds of change started blowing through the Internet world as Amazon.com started to negotiate settlements with states and began paying sales tax.  While legally everyone was always supposed to pay sales tax in different states for stuff sold over the internet, no one did. Now it seems like a good idea to get on board. I started signing up to pay other states when Kat Simpson and Michael Rice came out with their book on sales tax because Amazon had a nexus in those states and I had sales there.  My suggestion* is to first learn what you are doing in selling on Amazon, and then learn about sales tax, etc.  A new law in the works in Congress may change things for online sellers as well.

Today’s blog post is for those of us who use Amazon.com to collect our sales tax for us.

Doing it the Hard Way: Amazon’s Reports

Amazon switched its sales tax reporting service a few months ago and it was excruciating.  Amazon provided no help whatsoever online or by phone.  There is no one there who can answer your questions about sales tax reports or related sales tax issues. Save yourself the grief of trying. It drove me nuts. Anyway, suddenly the reports/excel spreadsheets we got from Amazon were all jumbled up and it was impossible to do a simple sort to figure out what you owed for each state. I had to go through line by line and look at every sale and add up the sums manually on a piece of paper – it was outrageous!

My assistant who is an advanced Excel user figured it out for us. You basically have to set up the spreadsheet to “freeze” cells and then sort by state. You then use the “filter” function to see each individual state. Huh? Don’t worry! She created a YouTube video for us.  You can look at my previous Step-by-Step on sales tax reports to see the screenshots and directions for downloading the sales tax reports, but remember that the step for sorting the excel spreadsheet is now covered by the YouTube video listed below:

  1. Inside SellerCentral, go to “Reports” and click on “Tax Document Library” on the pull-down menu.
  2. Under “Sales Tax Reports” click on “Generate a tax report”
  3. You will be able to select a month or a custom date range (for quarterly or annual payments)
  4. Click on “Generate.”
  5. It may take a few minutes to generate your report.  When it is ready, there will be a clickable button that says “Download Tax Report” under “Sales Tax Reports”
  6. The report will be in a “.csv” format.  Open it with Microsoft Excel
  7. Follow the directions on this video (http://bit.ly/ExcelSortSalesTax) to sort your spreadsheet and to see how much Amazon collected for you for each state. If you are only collecting for one state, then you can ignore this step and total up the spreadsheet to get your numbers.
  8. Go to the website for each state (you have them all written down somewhere, right? Too bad Amazon won’t help you with that, either) and file your taxes.

I suggest that you know how to do this tedious process so you can make sure the right amounts are being collected in the beginning. I discovered early on, for example, that some of my products were showing up as “exempt” and sales tax wasn’t being collected properly. This was a setting issue that I was able to fix. See my previous blog post and Step-by-Step on sales tax to learn more about my early mistakes and how I fixed them.

I still pull my Amazon report every month (OK, my assistant pulls it), but it is mostly to handle the first payment for new states. I like to check each new state as I add them to make sure everything is working OK with TaxJar.com and Amazon.

Doing it the Easy Way: TaxJar.com

OK, are you freaked out yet? Take heart! TaxJar.com is an online seller’s new best friend.  The online program connects with TaxJar logoAmazon and PayPal and pulls the data from there so you don’t have to.  The software is extremely easy to use.  It tells you what you owe, keeps track of what you’ve paid and sends you reminders of when it is time to pay.

I was an early tester/user of the software and was delighted that they listened carefully to me and other FBA sellers to understand what we need and what the challenges are for paying sales tax in different states.  They even asked us to send in screenshots of how we file for each state so they could understand the data required by each state besides the numbers.  For example, some states require you to break out your sales by region, county or city. It is a royal pain in the butt and TaxJar made it easier for us.  Before these changes, it was still necessary to pull the Amazon report and do it the hard way.

TaxJar.com has relieved one of the biggest hassles of paying sales tax – figuring out how much you owe and paying on time for different states with different filing requirements.  I created a Step-by-Step for you HERE that shows you what TaxJar looks like and how it works although you probably won’t need it after the first time. The program is intuitive.

The first month is free and then it costs $9.95 a month if you have 1,000 or fewer transactions a month, $19.95 for up to 5,000 transactions and $49.95 for up to 15,000 transactions per month.  You can also get an additional two months free each year if you pay annually.

In the process of developing their company, they’ve become experts on sales tax in every state. I was concerned that Amazon was not collecting correctly for Pennsylvania and could not get anyone at Amazon to explain it to me.  The guys at TaxJar figured it out and sent me an email in less than a day. Pennsylvania is different from most states in how it figures sales tax obligation. I was confused and Amazon’s service was correct.

If you are collecting for Texas only, you may not need TaxJar.  Amazon’s report will be sufficient for you since we are a flat-rate state with easy-peasy calculations and filing [Come to Texas y’all, we make it easy to file taxes!]. For any other state with region/county and/or city requirements, or when you have multiple state obligations like I do, you will definitely want it. Arizona, for example, has a jillion counties and I have to file my taxes monthly.

Once again – here’s the Step-by-Step for TaxJar.com: http://bit.ly/TaxJar

*I am not a CPA or a Lawyer and I strongly suggest you consult with an expert on the requirements of your state if you have any concerns or questions about sales tax and Internet sales.

If you use the links in this post to give TaxJar.com a free trial and decide to stay a customer, I will receive a small commission.  You are welcome to go directly to the site and sign up, also. There is no difference in price. I am a happy customer of TaxJar.com which is why I recommend them. When I originally wrote this post, they did not have an affiliate program and I was still delighted to talk about my experience with them.

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{ 10 comments… add one }

  • Kat Simpson July 25, 2013, 4:38 PM

    Great post Cynthia! Tax Jar has just set up a fantastic Facebook GROUP where you can ask any Sales Tax questions and get help! You can search for the group on Facebook “Sales Tax for eCommerce Sellers” or just go here http://www.SalesTaxCommunity.com and join us!

  • cathy July 26, 2013, 4:48 PM

    Cynthia,
    I can’t thank you enough for the detailed help here on your blog.

    This topic is something that all new sellers need to learn more about —
    but I just really dreaded delving into it.

    Just knowing about TaxJar.com and Kat’s group ahead of time takes my stress level down a notch.

  • Steve July 26, 2013, 6:17 PM

    Thanks so much for this timely blog. I have just recently started looking into what is required, how to comply and hopefully how to do it and still have time to build a business.

    Had an exchange with my CPA recently and he mentioned liability for “Income” tax in multiple States as well. Thats a topic for another day.

    I’m curious if you have had a chance to look into how Outright handles the Sales tax issue. I’ve recently started using Outright and wonder if TaxJar offers anything that Outright does not.

    Obviously the fewer services used the better but I also want to make sure I’m covering my bases too.

    • Cynthia Stine July 26, 2013, 10:24 PM

      Steve,

      I don’t use Outright so I can’t say much, but Kat Simpson uses both. She’s on facebook all the time through her ThatKat group. I’m sure she’ll have a good answer for you.

      Take it a step at a time. The first step is to get good at making money, then it is much easier to tackle the sales tax issue.

      Cheers,
      Cynthia

    • Cynthia Stine July 28, 2013, 12:08 AM

      Steve,

      I asked Kat your question and here’s what she said:

      Hi Cynthia Stine They are both wonderful programs to help sellers but totally different. If your blog reader is comparing them, it is probably the sales tax portion of Outright. All Outright does for Sales Tax is gather the figures collected for each state. That has been VERY helpful BUT now we need to know the counties collected and more. Also, Tax Jar is adding services to where we will be able to FILE our sales tax reports right from their page soon. So Outright is for bookkeeping – Tax Jar is for sales tax collection and payment. Hope that helps some!

      Cheers,
      Cynthia

  • Beth July 28, 2013, 11:53 PM

    Thank you! I’m still newish to Amazon and the tax stuff blows my mind. I honestly don’t do anything about collecting sales taxes right now, because I’m still working to get the hang of FBA and working on getting better at sourcing products and so on. The idea of tax collecting in many different states is overwelming. :( I thought we only needed to set up a system to collect taxes, but not pay them in so many places…I thought paying in my own state would suffice. Blah.

    When I have a good schedule and I’m more adept at FBA, I’ll delve into taxes. This is an awesome article, one of the few I’ve seen about Amazon tax issues and thank you again.

  • Mechele Tison July 31, 2013, 11:37 AM

    Great post, thanks! I am a relatively new seller, and I live in Texas – can you clarify for me – you use TaxJar and file for several states and you live in Texas. Later in the article you say that if you live in Texas you may not need TaxJar as it’s a flat rate state. My inventory goes to various Amazon warehouses across the country – and I do have my settings in Scanpower to collect taxes (gen tax). Do I still need TaxJar? Thanks!!

    Mechele

    • Cynthia Stine August 9, 2013, 2:57 AM

      Mechele,

      If you are paying taxes in other states you will definitely want TaxJar. If you are only paying taxes in Texas you probably don’t need it. At some point you will need to register in other states where Amazon has a warehouse and start collecting sales tax for sales in their states. Kat Simpson and Michael Rice wrote a book about this that you might find interesting. You can also search my blog for Kat Simpson and it should bring up my review of her book

      Cheers,
      Cynthia

  • Dakota January 1, 2014, 7:06 PM

    Hi there,

    I’ve really enjoyed reading your posts, I have started selling product on Amazon in the past few mons. What I’m concerned about is, when do I need to pay taxes? I typically buy products from ebay and flip them on Amazon. I am unfamiliar with the tax process- I am only 17.

    • Cynthia Stine January 6, 2014, 5:36 PM

      Dakota,

      There are two taxes you need to think about: sales tax and federal taxes. You will pay federal taxes on your business from day one. Generally you file your tax return on March 15 (if you are incorporated – April 15 if not) and report your expenses and profits. Any taxes due are due at this time. For sales tax, you start paying sales taxes when you start buying goods tax free. Each state varies on how often you need to file and pay. Most states require you to report and pay monthly until they get a feel for your annual volume. Then they may change you to quarterly or annual filing and paying.

      For federal taxes, YOU pay Uncle Sam based on how much you made. For sales tax, your CUSTOMERS pay the tax when they buy something from you. This tax is paid to you and then you are required to file and pay it to the state. Since I live in Texas, I got my Texas sales tax certificate first. I did this so I could buy inventory without paying taxes. Now when I sell an item to someone in Texas, Amazon collects the tax for me and puts it in my account. Then I report it and pay it to the state of Texas.

      Of course, I sell to people all over the country. What about them? This is when it gets confusing. The laws are changing and congress is working on a federal law that would affect (and override) many state laws when it concerns online retailers collecting and paying sales tax. My strategy is to follow along behind Amazon. Currently Amazon is paying or in negotiations to pay sales tax in the states where it has a warehouse or “significant presence” also called a nexus. I’m working on doing the same. It is a lot of paperwork and time.

      My advice to you at this point is to: 1) talk to a CPA about your business and learn what kind of data you need to file and pay federal taxes properly on your business. You can talk to him/her about the tax advantages of being incorporated and what kinds of things you can claim as deductions. You must declare all income from your business on your 2012 taxes. 2) Consider getting a sales tax certificate when you feel comfortable with the business and would like to get the extra savings benefit of not having to pay sales tax when you buy items. You get this from your State Comptroller’s office. 3) Tackle sales tax in multiple states once you have steady sales. You are only one person and I imagine you are not making a lot of money at this early stage in the game. Table the topic until further down the road when you are comfortable with steps 1 and 2.

      I have a book listed in my “helpful books” tab that covers tax much more extensively and yet is pretty clearly written and much easier to understand than most tax-related books. You may want to look at that as well.

      Hope this helps!
      Cynthia

      PS. If your CPA has different recommendations, you should follow them.

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