Sales tax, historic data, and multiple channels - understanding taxes in Pennsylvania
Like many states, Pennsylvania is in the process of introducing new tax legislation aimed at ecommerce retailers. While their new system is slightly less messy and complicated than some others, it can still be difficult to understand for non-accountants. If you’re an Amazon seller selling in Pennsylvania, it’s obviously beneficial to understand the ins and outs of the new system. We talked to Amazon tax expert Michael Fleming, of Michael J Fleming & Associates Sales Tax and More, to gain a better understanding of the issues and how they will affect your business.
Automatic tax through Amazon
Pennsylvania’s new tax system came into effect this April. It’s similar to Washington State’s Marketplace Facilitator Tax, in that sales tax will be paid by Amazon on behalf of the seller. However, unlike Washington, Pennsylvania doesn’t have a separate Business and Occupation (B&O) tax, which makes the whole system simpler in many ways. Technically, Amazon sellers are still supposed to register and file a tax return in Pennsylvania. If they’re only selling on Amazon, the return will detail their sales and declare that Amazon has paid any sales tax. But, as Michael Fleming explains, doing this may not be worthwhile for smaller sellers. Any penalties owed are related to unpaid taxes, and because you would have paid through Amazon, you should have zero owing. The state may look back through your historic transactions, but if you’re a small operator, you’re unlikely to have sold enough to incur a penalty.
For larger sellers the risks are more significant. Michael explains that larger sellers who fail to register and declare run the risk of triggering an investigation from the state. Because Amazon shares seller information with the state tax authority, the chance of an investigation is slightly higher – they’ll have your details on one list, and if you don’t appear on another as a registered seller you could be targeted. Even though Amazon will have paid your sales tax for the current year, an investigation would go back through your historic data, and could open you up to penalties on years of unpaid sales tax. Similarly, businesses selling through multiple channels – not just Amazon – should probably register to avoid scrutiny. Again, Amazon will have paid sales tax on your behalf, but any tax owing on sales on other platforms – like Shopify or Ebay – will need to be declared.
According to Michael Fleming, the risk of an investigation is not incredibly high, but it is a risk. He prefers a conservative approach, rather than taking unnecessary chances. He explains that with the onset of the new law, many sellers in Pennsylvania have approached him to ask whether they should deregister in the state. Again, his recommendations vary depending on the size and age of the business. Small sellers don’t have a lot of exposure in the state, so deregistering is unlikely to incur penalties, even if it triggers an investigation. The same goes for businesses that are just starting out – there is no historic data for the state to look at, so no chance of investigation. For larger sellers, deregistering could throw up a red flag, causing the state to start looking into past transactions – not really worth the risk. On the other hand, suddenly registering after being unregistered for a long period could also make the state give you a second look.
Insight from the experts
Believe it or not, Pennsylvania is one of the less complicated states when it comes to Amazon and sales tax. But, as we’ve seen, it’s still fairly difficult to understand. Whether you’re small or large, old or new, multi-channel or Amazon only, it’s always a good idea to talk to the experts before declaring, registering, or deregistering in the state. They’ll be able to help you understand your options and make the best choices for your business. If you’re not sure where to start, contact Michael Flemming at Michael J Fleming & Associates Sales Tax and More.
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