Walmart Sales Tax - How To Do It The Right Way
Sales tax is one of the greatest challenges for ecommerce sellers in the US. Why? Because compliance requirements differ across the states, and the consequences of getting it wrong can be quite significant.
In 2018, the South Dakota vs. Wayfair Inc. ruling changed the tax landscape for remote sellers for good. With this decision came a wave of state-specific rules and definitions of tax nexus, leaving many sellers - small and large - confused about their obligations.
In this article, we discuss:
- Challenges and criteria: where the challenge in sales tax comes from and how nexus is determined.
- Getting started with Walmart sales tax: your options for tax compliance methods.
- Qualified support: where to find qualified, tailored support to ensure success.
- A2X for Walmart: the natural choice for automated, accurate books.
For helpful terminology breakdowns and tax-related definitions, check out our guide to understanding ecommerce sales tax.
Tax Nexus Challenges & Criteria
“One would think that managing… [sales] tax would be old hat by now… but more and more organizations are facing greater challenges when it comes to compliance — and for good reason. Online sales are skyrocketing while state revenues are in decline across the U.S. As lawmakers evolve their state’s tax rules to shore up deficits, the tax landscape is in constant flux, leaving many accounting and finance pros in the dark.”
The colossal increase in online sales has not been ignored by state or federal lawmakers. It is estimated that sales and transaction taxes make up almost half of state tax revenue, so it’s in their interests to collect as much as they can.
Each state now has the right to dictate and enact their own tax nexus laws in order to make up for deficits from people shopping online and through marketplaces. What does this mean for ecommerce sellers? With customers spread across up to 12,000 different tax jurisdictions, sellers need to understand where their obligations lie and where they might be exempt from certain regulations. Managing this manually presents numerous challenges and the potential for costly mistakes.
Leading industry expert Michael Fleming believes that getting your taxes right is not going to get easier, either. And with precedents set like that of Massachusetts in 2017, where Amazon was forced to hand over information about some of its sellers for tax purposes, it is more crucial now than ever to be prepared for and comply with the constantly changing regulations.
Sales Tax Nexus Criteria
First up, you need to understand the criteria for tax nexus. If you meet some or all of these criteria, depending on the state, you are considered to have a link (nexus) to that state and therefore, be liable for its specific tax regulations:
- Your business has a physical location within that state.
- Your business has employees living and working in that state.
- Your business has property, tangible or intangible, within that state.
- Your business has employees or representatives who work there regularly.
- Your business supplies products to customers in that state (above the relevant sales tax nexus threshold).
Back in the day, it was merely a physical presence that was required for sales tax to apply. Now that the internet accounts for such a huge portion of sales revenue, things had to change.
Choosing Whether to Register
If you have nexus in multiple states and customers spread across jurisdictions, simply registering in all of those states may not make the most business sense.
Fleming details his five factors for deciding whether to register your business in a state below:
- Sales volume: if your sales volume is low, it may not be worth registering at all. The potential fallout, according to Fleming, may be easier to reconcile than the cost of complying.
- Taxability: most FBA sellers trade in Tangible Personal Property (TPP) which is usually taxed. There are however, some exemptions - some states exclude clothing, some dietary supplements. So it pays, literally, to check the dine print.
- Risk tolerance: if you’re constantly worried about auditing, even if your revenue in a certain state is low, Fleming recommends that you register. Do what makes you most comfortable.
- Capital reserves: if you have money set aside in the event of a bad audit, the safer you’ll feel if you don’t register. Fleming points out however that many companies fuel profits into growth or inventory, using up this safety net - so just plan ahead!
- Profit margins: similar to the above, if your profit margins are high then you should have more wiggle room when tax is due. If lower, you may struggle.
The main takeaway? To be prepared. If you don’t register in certain states, what’s your backup plan? If you do, can you afford to keep up? For more detailed and advanced tax strategies, check out this helpful article.
Getting Started with Walmart Sales Tax
The good news is, even Michael Fleming, with 20+ years in the biz jokes that he’s surprised he understands it! So, if you’re still a little confused, you’re far from alone.
You have a few options to ensure you get started the right way with sales tax calculation when selling on Walmart Marketplace:
- Build on your existing strategy: already selling on Amazon? Sweet, you should have a sales tax strategy in place. It will largely be the same on Walmart, just ensure that if your customers spread further, you consider registering in more locations. It’s also important to count your total sales into each state (i.e. the combined volume and value of sales across all selling platforms), rather than just the income from selling on Amazon or Walmart.
- Take advantage of marketplace facilitation: like Amazon, Walmart offers sellers the option to collect tax for them. It’s not mandatory, but certainly recommended, and takes the worry away from you in ensuring you comply with the varying regulations. Just make sure that turning on marketplace facilitation doesn’t interfere with your sales tax strategies that are already in place from selling on other platforms.
- Strategic fulfilment: we know that a key difference between Amazon and Walmart is the expectation that Walmart sellers fulfil their own orders (unless you opt for WFS). Considering that physical locations count as nexus, as does having intangible inventory in another state, it would be useful to consider how the decisions you make about these will affect your tax upfront. You might be able to reduce the number of states you register in from the beginning.
Get Qualified, Tailored Support
There are excellent resources out there to give you the best advice wherever you are in your ecommerce journey. Investing in these now will provide you with invaluable advantages long-term, and relieve the incessant head-scratching that can come with sales tax in the US:
- Chat to an ecommerce accountant: if you’ve read this far, it will be clear how easy sales tax is to get wrong. You can register everywhere and follow the regulations to the letter, but cost-wise, this could sink your business. It pays to be smart, and getting tailored advice could be the difference between sink and swim.
- Automate your Walmart revenue recognition: A2X for Walmart gives you automated books. By linking A2X with your accounting software, you have the tools at your fingertips to calculate and reconcile not just your tax across various states, but your transactions from multiple currencies and time zones.
- Connect your cloud accounting system with TaxJar: when A2X and TaxJar work together, it is possible to automate away the workload that comes with manually calculating and filing sales tax returns in each state. By using TaxJar as your Walmart sales tax calculator, you can rest easy knowing that your sales tax fundamentals are sorted.
- Learn more by reading our sales tax guides: this guide on USA and Canada ecommerce sales tax will provide you with a solid foundation to help get your accounting set up for success.
Michael Fleming and his team at Sales Tax and More host regular webinars which you can sign up to, to keep up with changing rules and the latest in all things sales tax. Whatever way you decide to go, understanding this element of your business will give you the power to make smart decisions about your business operations and the way your compliance strategy needs to evolve moving forward.
A2X for Walmart Sales Tax
In an exciting partnership with Walmart, we are thrilled to be able to offer sellers peace of mind with their Walmart Accounting by connecting your Seller Center account up with your cloud accounting system to automate the inputting of transactions.
Until recently, there was no easy way to connect your cloud accounting system to Walmart Seller Center and automate the manual data entry with precision. That’s why we designed A2X for Walmart - to solve this problem.
Saving you time, allowing you to set and forget, delivering you clean accounts to allow you to make informed decisions are just some of the reasons that A2X makes perfect sense for Walmart sellers.
For more information and to get started, you can find out more about A2X for Walmart here.
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Learn how to manage your sales tax obligations like a pro
Sales tax is complex and the costs for getting it wrong can be significant. Discover the key terminology, compliance strategies as you grow, and how to set your business up for success.Download our free guide