The Prosper Show is an annual conference for Amazon marketplace sellers, and the ecosystem of businesses and applications that serve marketplace sellers. During the 2018 Prosper Show held in Las Vegas on March 13-14, 2018, A2X hosted a live interview panel with four leading Amazon marketplace accountants:
- Scott Scharf from Catching Clouds
- Melanie Shabangu from Avask Accounting
- Jeremiah Kovacs from MuseMinded
- Cyndi Thomason from Bookskeep
During the live panel, audience members had the chance to ask the Amazon accounting experts a range of curly questions, and have a discussion about the future of Amazon accounting.
What are some of the biggest challenges Amazon sellers face today?
- The market is becoming more and more saturated, and sellers from other regions of the world are often able to sell products for much cheaper than prices US sellers can offer the same products for.
- Margins are being squeezed from increased marketplace fees and Amazon Basics taking entire markets from smaller sellers. It is important for sellers to identify which products are profitable, focussing on the ones that are making money and dropping product ranges that aren’t making money.
- Amazon is constantly changing their ecosystem. Staying on top of these changes, and altering your business strategy to suit can be a challenge at times.
- For UK sellers who are expanding into the European markets, being tax compliant presents difficulties. Governments are cracking down on sellers who aren’t adhering to the regulations, so this is more important now than ever before.
If somebody is going to look at 2-3 pieces of technology to implement into their Amazon business, which ones would you recommend checking out?
- There are lots of tools out there for Amazon sellers, and lots of overlap in the value that they are offering.
- Amazon sellers tend to be very zoomed in on the day-to-day operations of their business, with a focus on tools and tactics. The question asked is often “which tool are we going to pull out this month? We’ll give this a go for a month and see if it moves the needle”.
- Many sellers seem to be looking for the silver bullet, the one tool that changes everything. As a result you have this sort of strategic near sightedness, not zooming out and steering a ship in a strategic direction that’s going to grow it in the long term. When you’re in ‘tweak mode’, it’s hard to see the bigger picture.
- You need real-time analytics tools (such as HelloProfit and Manage By Stats). With these front-end analytics tools, all you have to do is upload your costs, and they do the rest. No need to waste hours downloading data, pivoting etc.
- Refund managers (such as SellerBench, RefundSniper and Refunds Manager) are a great way for business owners to make the most out of their time by outsourcing the manual work of finding cases where refunds were not issued correctly and chasing them up with Amazon. If you’re doing enough volume through FBA, the potential amount of refunds owning can be quite significant.
- People often don’t want to pay refund managers a 20-30% commission, so they assign the task to somebody in their organization. The problem is that the rules are changing so fast, and these refund management companies aren’t automated. They cannot send in thousands of API requests. Instead, they analyze the data, give you a report and help to open support cases. There is still a fair amount of work involved.
- Amazon does voluntarily offer refunds on things that they catch and are willing to pay, but that’s not everything.
- You need a cloud inventory tool that’s creating a purchase order for every purchase, and you need to be able to track every order, and changes to inventory (especially if you sell through multiple channels). It is vital that this cloud tool can track movements of inventory into and out of FBA. Without an effective inventory tool, it is very hard to scale.
- Look at the areas of your business that you want to outsource. After you’ve run your business for a while, you’ll know which areas need to be optimized.
If a seller lives in a single state, only has FBA inventory, no other 3PL, employees or any other physical presence, who are they obliged to pay sales tax to, and who should they be paying the sales tax to?
- Once you send inventory to FBA, Amazon will dynamically move your inventory. You have no control over which states your stock is sent to. You can request your stock back or have it destroyed, but you have no say over where Amazon stores your inventory.
- This creates sales tax nexus in up to 26 states – an obligation to register and apply for sales tax in these states. However, this is a risk management decision.
- On average, it costs $200 register in each state, plus around $50 per state/month to comply (when you factor in the costs of all the various tools). If you owe $300 sales tax in Kansas for example, you might decide not to pay sales tax there.
- The right way to go about sales tax is to register wherever you have nexus. But you need to make a risk management decision on the cost and impact to your business, and decide where to go from there.
- Auto collect: states have now got Amazon to collect sales tax on behalf of sellers and to pay it to the state. This prevents the states from needing to chase up individual sellers. However, if you are already registered, you cannot de-register. Even if you have no sales tax to pay, you are still required to file a $0 return.
- Nothing has changed at the law level. States are set to receive much more tax revenue from Amazon directly.
- If you are selling through other channels such as Shopify and eBay, you have to collect and pay sales tax on these orders, even if Amazon is collecting sales tax on your behalf.
- States are also declaring that because you have economic nexus in a state, you are also required to pay income tax to the states (just like any other local business operating within the state). The presence of inventory in the state is what creates income tax nexus.
The playing field is not really fair because a lot of international (Chinese) sellers are selling in the US, but not paying sales tax.
- This is a big concern. If you’re in the US, the state can go through an administrative process to collect money from sellers residing in other states. The states can’t really go after international sellers.
- In the EU, at the national level, countries are forcing the responsibility for collecting sales taxes from overseas sellers onto Amazon. There is a high chance of the same thing happening in the US. However, for this to change, amendments to law would need to be made at the congressional level.
- At the moment, international sellers in the US market are ignoring their sales tax obligations for the most part.
For a seller thinking of selling in the UK, should they register for VAT before they get started or is this something that they could do later on?
- Before December 1st, 2012, sellers were just selling in the UK without worrying about VAT. Now, the answer is no, you must register for VAT first.
- Amazon sellers in the US have had trouble opening accounts in the Amazon UK market without a VAT number. However, if you are entering Amazon UK/Europe from another market such as China, then Amazon won’t stop you from opening an account.
- Right now, the government is playing serious catch up, and people are being investigated for tax obligations going back to 2012. This is likely to happen in the US as well.
If someone is selling their business and has flown under the radar with respect to paying taxes, what can the buyer do, and who is liable to pay these taxes?
- If you are the buyer, make sure that some money is held in escrow to cover taxes, and have a clause in the contract that absolves the purchaser from any accrued tax liability prior to the business changing hands.
- In general, when a business is sold, the assets are transferred into a new LLC. States can go back up to 10 years to get tax from a previous owner. It doesn’t matter if the company has been dissolved, the owner has filed for bankruptcy or whatever, the tax liability still exists.
- If the purchaser gets audited for sales tax and previous liability shows up, they are most likely going to sue the person they bought the business from.
- By working with a quality business broker, and putting a solid contract in place, both sellers and buyers can get the most out of the transaction whilst minimizing risk.
Where does the accounting system fit into the data/analytics side of an eCommerce business?
- Unless you’re running a really expensive ERP suite, you don’t want granular detail in your accounts. You want to make sure that the information is accurate and reconciled to the penny with Amazon payments and follows accrual accounting rules.
- You want summary financial information. You can analyze data, but there’s only a certain amount of data that’s useful from an accounting perspective. You need accurate financial statements to make financial decisions.
- Your accounting system is the 50,000 foot view of your business. It is comprehensive and shows the whole picture. It’s not meant to give you a great deal of detail. That’s where third party analytics tools come in handy, to zoom in. If you try to get either tool to do the opposite, you’re gonna drive yourself insane. Software is built with very specific use cases.
What do you think the biggest hurdles are for Amazon sellers as their business grows?
- When you’re growing quickly, you may need to shed systems that worked well in the past. There may be different standard operating procedures that you need as you get larger. It’s important to be willing to change as you grow, and put new systems in place that serve your needs moving forward.
When you’re taking on new clients, what’s the most common mistake they bring to you?
- The biggest problem is when sellers bring their books from accountants that aren’t specialized in Amazon/eCommerce. Accountants that aren’t technical and haven’t taken time to learn the Amazon ecosystem and tools available often don’t know what they are doing. They tend to miss data and try to fill the gaps, which results in quite messy information.
- Another big problem is missing accounts (credit cards, bank accounts, PayPal) that should be on the financial statements.
What do you think the future of Amazon accounting looks like?
- More and more software integrations that hopefully do a better job looking at the bigger picture rather than analyzing granular detail.
- Automation and artificial intelligence in the accounting space will remove a large portion of the accountant’s workload. There will be a shift towards “how do we add value?” and “how do we become a more trusted advisor?”
- There will be a division between accountants who participate in these trends and move forward, and those reacting to the innovations around them.
- Being a stronger advisor and adding value through communicating strategy and developing relationships is what will ultimately help accountants to keep their clients and grow their businesses.
- For the world at large, this is a good thing. Compliance costs are trending towards zero, and it will force a whole group of people to be creative about the questions they ask for moving their business into the future.
A huge thanks goes out to Xero for sponsoring this event. If you have any questions or thoughts about the topics discussed here, let us know in the comments below!