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Must know sales tax tips for drop shippers: Printful 2019 - YouTube
Channel: Printful Custom Printing
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One of the things that make or break an online
store is finances, and therefore taxes.
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If taxes are something that confuse you, donât
worry, weâre here to help.
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Iâm Wes from Printful.
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And today I'll be answering a few questions
about sales tax, including what it is, why
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it's collected, and when and how to collect
it.
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Iâll also go over some common questions
about drop shipping sales tax and sales tax
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with Printful.
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Joining me today are our friends at TaxJar,
who will be lending their expertise and answering
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some of these questions.
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Hei, Iâm Jennifer Clark from TaxJar.
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Iâm excited to join Printful today to explain
some of the biggest concerns and pinpoints
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around sales tax to help make things clearer
for you.
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And stick around until the end of the video
â we're hosting an AMA in the comments down
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below.
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So, If youâve got a question we didnât
cover, you can ask us in the comments for
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the next 3 hours after this video goes live.
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Finally, all the links we mention in is videos
will be available in the description down
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below.
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What is tax and why is it important?
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So, let's start with the basics.
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What is tax?
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Tax is a percentage of the sales price of
a taxable product, put in place by the government.
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The government uses this money to pay for
public services, like schools and roads.
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Sales tax is governed at the state level,
which means each state gets to make its own
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laws.
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This means that each state collects sales
tax a little differently.
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Sales tax is a âconsumption tax,â which
means it's only charged when the end consumer
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buys goods or services.
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It's also known as a âpass-through tax,â
because even though a business charges sales
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tax, they donât keep it.
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Businesses are required to collect it and
remit it - or pass it through - to the relevant
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government.
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This means that we at Printful are required
to collect and remit sales tax on purchases
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our customers make based on their retail price.
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And you, our customer, might also be liable
to collect and remit sales tax as an online
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seller.
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How do you know when to collect sales tax?
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So, that leads to the obvious next question,
how do you know when to collect sales tax?
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You need to collect sales tax from sales in
states where you have âsales tax nexus.â
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Sales tax nexus is having a physical presence
in or a meaningful connection to a state that
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requires you to comply with their sales tax
laws.
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This means that you would need to collect
and remit sales tax when someone from that
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state makes a purchase.
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These are a few common factors that create
sales tax nexus:
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1.
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If you have a physical location
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This includes a warehouse, office or even
your kitchen table (home office).
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1.
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If you have employees or salespeople
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This includes employees working remotelyâyou
may have nexus where they work from.
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Note that in some states, affiliates can also
give you sales tax nexus.
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1.
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States you store inventory in
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If you use Printful for print-on-demand dropshipping,
our fulfillment centers donât give you nexus.
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However, if you are using Printfulâs Warehousing
and Fulfillment service, then you will have
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nexus where you are storing it.
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So, if you store products in our North Carolina
warehouse, you will have nexus in NC.
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1.
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If you make enough sales in a state, in dollars
or transactions
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This is also referred to as economic nexus
and has caused some confusion for a lot of
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online sellers.
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That's because, on June 21, 2018, the Supreme
Court made a ruling in the case of South Dakota
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v. Wayfair, overturning a previous decision
and law known as Quill.
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Quill established that state governments can
only tax businesses who have a âphysical
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presenceâ in the state.
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Now, states can tax remote sellers if they
make enough in sales or transactions.
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It was designed to level the playing field
between brick and mortar stores and ecommerce
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stores, so that both have to pay taxes.
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Since this ruling is fairly new, the laws
are changing rapidly, and each state has its
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own threshold.
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To keep up to date, we recommend following
TaxJarâs blog post on economic nexus for
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the latest information.
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The lowest threshold for economic nexus at
the date of recording is $100,000 in sales
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or 100 transactions in Minnesota, so keep
a lookout when approaching those numbers.
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With all this information, you should now
be able to tell which states you have sales
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tax nexus in.
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Marketplace facilitator laws
Several states have also made laws around
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marketplaces like Amazon, eBay, and Etsy.
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These states, like Oklahoma and Washington,
require marketplaces to collect and remit
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sales tax on behalf of their third-party sellersâ
transactions.
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So what does that mean for you?
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Any sales you make through these marketplaces
to these states will be taxed for you, you
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donât need to do anything.
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However, if you have nexus, you should keep
a sales tax permit, as they only handle tax
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on sales through the marketplace.
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You still need to handle sales tax through
other avenues.
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If you donât do any sales outside of those
with the marketplace, youâre required you
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to file a simple âzero returnâ saying
so, or register for non-reporting sales tax
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status.
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You can keep up to date on marketplace facilitator
laws at TaxJarâs blog post.
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How do you collect and remit?
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So, how do you actually collect and remit
sales tax?
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Step 1:
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The first step is to check where you have
sales tax nexus.
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To help with this, TaxJar has a handy Sales
and Transactions checker, which shows you
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exactly where you have economic nexus.
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Itâs also important to note that international
sellers may also have sales tax nexus, so
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if you're outside of the US, you should check
as well.
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We recommend that international sellers who
have, or are approaching nexus to get in touch
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with a tax expert to help with their situation.
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You can get more advice in our blog on international
sellers, link in the description below
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Step 2:
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Then, you need to check if your products are
taxable.
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If you use Printful for print-on-demand, you
can see which products are considered non-taxable
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by some states in our FAQ, the link is in
the description below.
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If you use Warehousing and Fulfillment, you'll
have to do your own research to see which
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products are non-taxable.
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Step 3:
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The next step is to apply for a sales tax
permit for each state you have nexus in.
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You canât collect sales tax until you have
a permit.
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The application process is different for every
state.
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You can find the full list of how to apply
in each state on TaxJarâs blog post.
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If you only have to apply for a sales tax
permit in a few states, then you can do it
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yourself by following the step by step instructions
we provide.
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If you have to apply for many states, then
we recommend using one of our vetted sales
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tax accountants to help you out.
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Once this is done, you can add tax rates to
your store.
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You should check your ecommerce platforms
resources to find out how.
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Then, you can start collecting
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Step 4:
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If you use Printful, we also recommend you
get a resale certificate, which is different
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from a sales tax permit.
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A resale certificate lets you buy products
without paying sales tax if you plan to resell
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them, meaning Printful wonât collect sales
tax.
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So, you should submit resale certificates
to Printful for each state you charge sales
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tax in, so we don't unnecessarily charge you
tax.
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In some states, your sales tax permit also
works as your resale certificate, but other
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states keep them as two separate documents.
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You can find and fill out a resale certificate
application form under the billing section
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of your dashboard.
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Choose your state, click âadd certificateâ,
fill out the details, and choose any combination
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of categories (Apparel, Home & living or Accessories)
you wish to be exempt from.
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Note that if you sell in a new category later
on, you'll have to resubmit your certificate
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to cover that category.
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So, you can apply for categories you don't
sell yet if you think you might later.
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Fill out and sign the form, upload it, and
click submit.
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Once you submit your completed resale certificate,
we'll review it in about 2 business days.
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After it has been reviewed, we'll send an
email to let you know if it's been approved
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or rejected.
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If it's denied, we'll let you know why so
you can fix it and resubmit it.
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If it's approved, you wonât be charged sales
tax on orders shipping to that state.
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However, you will be responsible for all taxes
on your end.
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Step 5:
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Finally, when sales tax filing due date comes,
you need to report how much sales tax you
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collected.
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To find out how to file a return for each
state, we recommend you go to TaxJarâs map,
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choose your state, and follow the guidelines
there.
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You need to determine how much sales tax you
collected from buyers in not only the entire
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state but in each county, city, and in other
special taxing districts within that state.
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This can sometimes be easy, like when there
is only one rate for the whole state.
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Other times, it can be really complex.
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Thatâs why we created TaxJar.
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TaxJar connects with all the shopping carts
and marketplaces where you sell and then creates
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a return-ready sales tax report just the way
the state wants to see it.
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Itâs also important to remember to file
a sales tax return every time you have a filing
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due, even if you didnât collect any sales,
or there could be a hefty penalty.
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Thatâs the basics of sales tax, so let's
move on to how sales tax works in a drop shipping
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relationship.
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Drop Shipping + Sales Tax
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Sales tax while drop shipping can be confusing
as there are multiple sellers involved.
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Weâve found the best way to explain this
is through a diagram.
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In this diagram, we have the drop shipper
(in this case Printful), the seller (in this
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case you), and the end customer (in this case,
your customer).
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Letâs start with you.
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You need to collect sales tax from your end
customer if you have nexus in their state.
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Simple yes or no.
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Now, we add the drop shipper, or on this case
Printful to the equation.
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If we donât have nexus in the end customers
state, then we don't charge you sales tax.
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If Printful has nexus in the end customerâs
state, we need to collect sales tax from you
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unless you provide a resaletail certificate.
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This doesnât matter if you have nexus or
not.
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So, the key points to remember here are:
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1.
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Sales Tax is collected on âretailâ purchases
based on the final customerâs location
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2.
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Even if you don't have nexus, Printful still
may need to collect sales tax from you as
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we could have nexus which needs to be fulfilled.
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3.
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A resale certificate is needed when buying
from Printful, otherwise, they will collect
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sales tax.
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And that's it!
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So let's recap what we went over today.
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Recap
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Sales tax is a pass-through tax, collected
by a seller and remitted to the government
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to pay for public services.
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We now understand what sales tax nexus is,
and the steps you need to take to collect
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and remit it.
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And, weâve gone over the common tax situations
you will face when dealing with drop shipping.
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Now, itâs over to you.
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Ask any questions you have in the comments
below!
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TaxJar team will be joining us for the next
few hours, so now's your chance to get some
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answers from our expert.
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Don't forget to head over to TaxJar for some
extra help with your tax filing!
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