New taxes, new issues - understanding Washington’s Marketplace Facilitator Tax
If you’re an Amazon seller with sales in the state of Washington, you may have noticed some changes to the way your sales tax appears in your A2X reports. This is the result of the new ‘Marketplace Facilitator Tax’ that was introduced in January this year. While this specific tax only applies to sales in Washington State, other states are introducing similar taxes of their own, which will affect Amazon sellers in the future. That’s why it’s so important to understand how the new system works, and what you need to do to be compliant in Washington. We talked to Amazon tax expert Michael Fleming, of Michael J Fleming & Associates Sales Tax and More to clarify the new rules and expectations around the Marketplace Facilitator Tax.
Getting your head around the basics
The new tax will appear in your Amazon settlement files under the name “MarketplaceFacilitatorTax”. You may see the name several times under one transaction, as it will apply to shipping and principal separately. As always, we separate out every Amazon charge so you and your accountant can manage your accounts as you see fit. To understand the new tax system, it helps to look at an example of a transaction: Principal $20.00 Tax $0.84 TaxWitheld -$0.84 FBA fees -$4.50 Commisson -$1.50 Promotion -$10.00 Total $4.00 These details should look familiar if you’re used to using A2X. The change is in the tax withheld section, which you’ll notice offsets the tax collected. Typically, accounting for sales tax means you’ll receive payments from Amazon, but owe tax to the state or city. Under this new system, you have no cash effect – the tax is collected by Amazon on your behalf, so you don’t see it in your account and don’t need to set aside money in a liability account to cover it. However, you are still responsible for recording the transaction. You have still paid sales tax, so it needs to appear in your accounting statements. Even though the transaction is instantaneous, you can record a debit to your asset account and a credit to your liability account. This way, you can record in your balance sheet the total tax collected and paid on your behalf, even though the net effect is 0.
Tax return responsibilities
Following the introduction of the Marketplace Facilitator Tax, many sellers are under the impression that their sales tax problems are solved when it comes to transactions in Washington. However, as Michael Fleming explains, this is not the case. Sellers still need to register in Washington, and still need to file a sales tax return. The total sales will be reported, taxes paid by Amazon will be recorded as a credit, and any remaining tax (from sales through Shopify or Magento, for example) will need to be paid. This is why it’s so important to record the amount of tax paid by Amazon on your behalf – it helps offset your overall tax liability and reduce your tax bill.
To make things even more complicated, Washington also has a Business and Occupation tax that applies to gross sales. This tax applies to every business with a physical presence or inventory stored in Washington State. It also applies to any business with sales in Washington State over $267,000 in 2017 (this changes to $285,000 this year). The B&O tax is only 0.47% for most Amazon sellers, but it is not paid on your behalf by Amazon, and needs to be paid with your annual tax bill. The state is committed to tracking down sellers who fail to declare their gross sales and pay the B&O tax they owe. Whether you’re US-based or not, registered in Washington State or not, they are likely to find you and impose penalties. In fact, Amazon paying your Marketplace Facilitator Tax gives the state vital information about who is paying their taxes – and who is failing to do so. Penalties for failing to pay can be up to 39%, and the state may even go back through transactions and apply penalties to all your Washington State sales for past years. This amount could add up, so it’s essential to register, declare, and pay up if you’re located in Washington, or selling above the threshold.
The Marketplace Facilitator Tax may seem to make things simpler for Amazon sellers, but that’s not necessarily the case. As always, it’s important to read up on the rules and regulations, and to consult a tax expert to make sure you’re compliant. As tax law and Amazon systems change in other states, things will become even more complicated, so it’s a good idea to get started now. Ready to start? Contact Michael Flemming at Michael J Fleming & Associates Sales Tax and More.
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