Options for Filing Sales Tax Returns [Part 3 of 3]
Estimated reading time: 5 minutes 30 seconds.
This article is a guest post from our good friends at MuseMinded - The Amazon Accounting Specialists. They have teamed up with The Tax Butler to offer a free sales tax starter kit for US-based Amazon sellers.
As the third and final article in our three-part series, this blog post takes a look at filing frequencies, and some of the ways that you can file your sales tax returns. In our previous two posts (linked below), we covered:
- What is sales tax and why does it matter to me?
- Sales tax strategies for Amazon FBA sellers in the United States.
In these previous articles, we covered what sales tax actually is, we defined nexus and looked at why Amazon FBA sellers have sales tax exposure in states where their inventory is held.
We then took a closer look at three approaches to complying with sales tax - the ‘by the book’, ‘wait and see’ and ‘stair step’ approaches.
In this article, we fill in the final piece of the puzzle: options for filing sales tax returns.
When you register for a sales tax license in a state, you will usually be sent some kind of package with the details of your registration. This is sometimes done electronically, but most states send it via the mail.
This package contains a copy of your sales tax certificate (generally a paper document), and a set of instructions for filing returns. In these instructions, you will find a very important detail - your filing frequency.
Most states require sales tax returns to be filed on a quarterly basis. However, a handful of states work on a monthly or annual cadence. It’s important to note that you need to file tax returns, even if you have no sales to report.
Once you are on their books, state tax departments are very good at making sure that you stay compliant and following up if you forget to file a return.
Tax Filing Options
When it comes time to file a return, you will need to visit the relevant state’s website and set up an online filing account. For more information on the specific details for each state, go to www.taxjar.com/states.
Most states have a sales tax permit registration process, and also an online filing portal registration process. The first registration is used to get a sales tax license, and the second registration allows you to fulfil your ongoing filing requirements. Once you have done registered through these portals, there are a few ways that you can go about filing your sales tax returns:
This is a ‘DIY’ approach, where you do it all yourself.
The cheapest way to manually file returns is to use the tax reports provided by Seller Central. With this option, you input your sales data directly to the state via their web portal using tax reports from Seller Central.
Amazon offers these reports for free, so it is a great way to keep costs down. However, the reports aren’t very user-friendly, and you will often need to do some spreadsheet calculations to get a better idea of your sales figures. It is suitable if you are only filing returns in a couple of States, but can get quite hard to manage if you need to file returns in more states.
TaxJar, Taxify and other sales tax apps also offer the ability to automate sales tax filings.
In addition to the organized tax reports for a base monthly fee, these software companies can also file tax returns directly to the state on your behalf.
Generally, this option costs around $20-$30 for each return filed in each state (see websites for actual costs).
Outsourced filing service
Companies such as The Tax Butler can manage your sales tax returns, and handle any questions or correspondence from the state on your behalf.
Returns are normally submitted using software just like with the automated filing option. As much as we would like sales tax to be a ‘set it and forget it’ type of situation, there will always be oversight needed from time to time.
If there is a calculation error with your software, or a state sends you a notice that needs responding to, this can take time and energy that could be spent elsewhere. Working with a firm to take this responsibility off your hands can be a great way to leverage your time and mental energy to focus on activities that generate income.
Generally, these services are priced in a similar way to sales tax software (for example, $99/month + $20/filing). This covers the cost of filings, plus provides them with a margin to cover the value that they add.
Which Option Should I Choose?
If you’re on a tight budget and not planning on ramping up your business quickly, the manual filing option should be sufficient to begin with.
At this stage, your sales tax exposure should be relatively small, and it is not likely to be too much of a hassle.
If you are only planning to file in your home state, then you might be able to get away with just using Seller Central reports. However, if you plan to monitor your sales tax exposure across all the states moving forward, then you may as well use TaxJar’s basic reporting.
Once you begin filing in multiple states, the need for sales tax software and outside help starts to increase dramatically. While you’re only registered in a few states, overseeing the sales tax software yourself will probably make sense.
When you get to a point where you are filing returns in most or all of the FBA states, the value of an outsourced service will become much more apparent. By engaging such a service, you will be able to free up your time to focus on activities that generate new business.
If you are looking to outsource this part of your business, take a look at the sales tax accountant directory by TaxJar. To learn more about sales tax, and what you need to know in order to get on top of your sales tax obligations, check out our free FBA sales tax crash course. In this course, you will learn about:
- What sales tax is used for, how nexus applies to you, and where you need to register.
- How to know if you are responsible for complying with sales tax laws in a State.
- Three common approaches that FBA sellers often take when it comes to complying with sales tax.
- Where to register, when to set your start date, and registration entities.
- Filing frequencies.
- Tax filing options.
- And much much more.
Stay on Top of Sales Tax with A2X
When you integrate your ecommerce platform with your accounting software, your transactions become automated. This is great, but some fundamental detail is missing for ecommerce sellers.
Lump sum deposits are sent to your accounting software without a breakdown of what credits or debits were involved in getting to that amount. Figuring out how much sales tax you collected becomes a time-consuming, manual process.
A2X can help make tax time a breeze, ensuring you remit the correct amounts and don’t get slapped with a nasty unexpected cost at the end of the financial year. Everything is broken down for you automatically, saving you time and money.
Also on the blog:
- How-to Guide: Collecting Amazon Sales Tax
- Intelligent Automation for the Amazon Seller
- 6 Common Accounting Mistakes that FBA Sellers Make
- An In-Depth Tax Series for Amazon & Shopify
- Why More Sellers are Diversifying Away from Amazon
- 5 Growth Opportunities for Amazon FBA Sellers
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