A business is built on two pillars: product and distribution. If you have a great product that you want to sell online, you need to decide how you are going to sell it. The big decision is whether to start selling in the existing marketplace, or to invest in personalised online store development. (The ambitious among us may do both).
The existing marketplace refers to any communal website that caters for numerous retailers and shoppers. The most popular markets in the U. S. are Amazon, Walmart, eBay, and Etsy. It’s simple to create a seller account on these platforms and start selling your products immediately. Running your own eCommerce website means the online shop belongs to your brand. Developing such a site requires paying for a SaaS solution or using an open-source eCommerce platform like Shopify or WooCommerce.
We could debate the pros and cons of each option for days, but if you want to distribute your product to the USA, it’s important you understand the US sales tax obligations of each channel…
The golden rule is this: in most states, it’s the marketplace’s problem, but…
In tax there is always a but! (That’s what makes it such a pain in the …) Whilst all 47 US states that have sales tax oblige website sellers to register and charge sales tax on their transactions, sales made via a marketplace are generally the marketplace’s problem. But be careful: although in most states Amazon, Walmart et al will be legally responsible to collect the sales tax on your transactions, you may still have an obligation to register with the state.
It is irritating – even though the marketplace be accountable for reporting and paying the taxes – some states still oblige sellers to register with them so they can keep their eye on you. These simplified registrations may be a pain, but if you want to sell compliantly you will need to register (assuming you have created nexus in the state).
The other thing to consider is your calculation for economic nexus. Even if most of your sales are done on a marketplace, if you are “omni-channel” and also sell to the US from your own site, the obligations will still apply for those sales. Therefore, when evaluating economic nexus thresholds, the marketplace sales might be included in that calculation (it depends on the state).
The final ‘but’ to consider is your fulfilment. As above, most sales tax obligations will arise because of economic nexus, but sellers are not off the hook when it comes to physical nexus. If you use a service like Amazon FBA (where your products are stored in and fulfilled from their US-based warehouses), you will need to check if that creates physical nexus. If so, the seller will definitely be obligated to register in that state regardless of your sales activity – even though the marketplace will still be responsible for charging and reporting the tax.
If you sell exclusively in the online marketplace, you will certainly have reduced US sales tax obligations – but you are not completely exempt unfortunately. If you are omnichannel, then you might not be responsible for the tax on the marketplace sales, but your registration and reporting obligations will be the same in most states because of your website sales.
It can be a minefield to navigate, so if you want to sell compliantly in the US, it’s crucial that you consult an expert to understand your legal obligations.