Collect Sales Tax On Online Sales? Know Before You Go (And Get Burned)

Is your online business charging the right sales tax? How sure are you?

Charging the wrong tax, or no tax, could bring problems down the line

Imagine this scenario:

You’ve built yourself a solid online business, selling wrestling equipment. Wrestling has long been a huge part of your life, so being able to offer the equipment needed to do the sport you love, is a dream come true in a lot of ways.

You have 3 employees now, so you’re doing alright for yourself and it just keeps getting better. You’re proud of how the business is shaping up, and you’re really grateful for your experience as a CPA. It’s given you the confidence to know that your books are solid and you’re in everyone’s good graces. Which, any business owner knows, contributes to a better night’s sleep.

Then one day a customer orders a $10 jump rope from you, and the next thing you know you owe $29,000 in fees and the IRS is auditing you for more.

Turns out that was a law firm who bought that jump rope, and they filed suit against you because you didn’t collect about .80 in sales tax. The suit claims you’ve defrauded the state through thousands of other transactions just like this one, and will drag on for about four months before concluding in huge fees payable by you.

Believe it or not, this actually happened.

You can read the original story that inspired this blog here: https://www.bna.com/10-jump-rope-n57982078939/

Because of how easily this could happen to almost any online seller, when we read this story we found it really disturbing.  

Here is an obviously intelligent businessman who even has a background as a CPA, finding himself in the position of having to not only pay $10,000 in back taxes (that he is still not convinced he owed, by the way), but to also pay an additional $20,000 in fees. To lawyers. His own lawyer, and to the plaintiff. That’s terrible.

One of the most disturbing things about the story is that he still doesn’t believe he needed to collect the tax, but it would be too expensive to fight it, so it was easier to just pay.

I guess the moral of this sad tale is that even if you are a CPA, it’s a really good idea to put a second set of eyes on your accounts. You truly just never know what could happen, and it’s best to be on the safe side as much as possible.

Sales Tax Resources

In addition to spreading the word about this story, we wanted to offer you some resources if you don’t currently have that all-important second pair of eyes. Below are a few that are for online sellers specifically, to get your thoughts oriented in the “tax collection” direction.

Hopefully this story is heard by enough people that it becomes very common for online sellers to use the tax resources available to them, so this sort of thing can never happen again.

TaxJar: https://www.taxjar.com/

In short, TaxJar automatically organizes your FBA sales data and creates sales tax-ready reports for each state you’ve sold in.

What’s really great is that it links right to your Amazon seller account and pulls the data it needs, right from the source, eliminating a ton of human error. And work. You can try it free for 30 days which is also nice.

Avalara: https://www.avalara.com/us/en/index.html

Where TaxJar integrates with the platform you’re selling on (Amazon, eBay, Etsy), Avalara integrates with the sales software you use (WooCommerce, Shopify Plus, Magento, QuickBooks).

Where TaxJar is more streamlined and easy to understand for the average person and the smaller business, Avalara has a lot of products to offer, for a range of business sizes, and may be more than a ~5MM operation needs.

Online Merchant’s Guild: https://onlinemerchantsguild.org/

Led by Paul Rafelson, OMG is a Trade Association, which is just a fancy way of saying it’s a group that’s funded by businesses which all have a trade in common. In this case it’s online sales. The focus is collaboration between companies, and in this case OMG works to advocate for fair law and policy toward online merchants. The businesses represented by OMG are mostly owner-run, so it’s the little guy they support.

As their FAQ page mentions… if you saw the exceedingly unfortunate Mark Zuckerberg deposition on Capitol Hill, you know all too well the congressional ineptitude and lack of understanding of tech and e-commerce. This is why OMG is so important. Small online business owners need safety in numbers to stand up to this complete lack of education so that decisions aren’t made that are detrimental to the whole landscape.

About the Author
After my last stint in Product Safety at Amazon from 2011-2014, I decided a change was in order so I packed up and moved to Puerto Vallarta Mexico to be a travel blogger and freelance writer. I found living in another country to be fantastically inspiring in many ways, and soon after my move, I joined Cascadia. I was then able to focus that creative inspiration on helping clients with really great marketing content, and other aspects of their product launches which they might find daunting. It’s been wonderful! I love helping people, and I love writing. So for me, it’s a match made in heaven.

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