UK sellers already using Amazon FBA services will already know that storing and despatching goods from another European State triggers a VAT registration requirement, regardless of the amount of income you are generating in that country. But what if you are thinking of taking the next step –into the USA?
There is no VAT in the USA, instead it is GST (“Goods & Services Tax”). In Europe, different countries have different tax rates, filing frequencies and other requirements. In The USA, different States have different tax rates, filing frequencies and other requirements. In terms of whether you need to register for GST in any State the USA has the concept of tax “nexus”. Nexus is defined as a “connection to or presence within a state”.
Like the EU, having a physical connection – such as storing and despatching goods from a State – means you will most likely have a tax nexus and a requirement to register for GST in that State. At the time of writing Amazon has fulfilment centres in 27 States, but that doesn’t mean that your goods will be stored in all of those States if you sign up to FBA services. Two of those States (Delaware and New Hampshire) don’t actually have any GST at the time of writing. Most of the remaining States have specific laws and/or policies that assert owning inventory in their state or using a warehouse is enough to create “substantial nexus”.
What you sell might not actually be taxed, but generally it will be as the majority of what is sold through FBA fits the definition of taxable property, and as such it is going to be taxable to almost all of your customers. However, some states do not tax groceries, some or all clothing and dietary supplements; however, other states do tax those items.
As you can imagine, with different rules in different States and having to file returns in each States puts a not insignificant cost onto compliance. But if you are new to the USA market and have minimal sales to begin with you might want to consider the materiality of your compliance exposure. Whilst any State will assert that you should be registered straight away, if you were charged a penalty and interest for failing to register that may well be less than the cost of compliance. Taking a commercial view, immediate registration may not be the best idea.
Some States have however now introduced Marketplace Tax Collector laws (again much like those in Europe, except that in this case the marketplace collects and remits the tax, as opposed to merely ensuring that sellers are registered). One advantage of this is that is takes the responsibility away from the seller. It’s probably fair to assume that more States will follow.
If you would like to discuss the implications of expanidng your e-commerce business please call 01942 725419.