Registrations, Regulations, and Complications: Tax Planning for International Amazon Sellers in the US
If you’re an international seller wanting to break into the US market, an ecommerce giant like Amazon might appear to be a straightforward solution.
With a 45% US ecommerce market share, a little bit of time spent creating an online store on Amazon and managing fulfilment certainly looks worth the investment.
What many international sellers don’t realise, however, is that the story doesn’t end (or even begin) there. State and federal tax laws come into play, as well as banking regulations and business registrations, all of which need to be organised before any selling ought to take place.
What should international Amazon sellers be aware of?
Wray Rives is a US-based chartered accountant who specializes in virtual services and non-US clients looking to break into the market. After 30 years working in accounting, eight of those working with overseas clients, he understands the quirks of the US tax system all too well.
He explains that sellers need to be aware of what they are getting into, and recommends that they seek expert advice before diving in.
Here, we list the key areas that sellers should think about before selling:
- Registering your business in the US: is it an LLC or corporation?
- Where in the US you should choose to register based on tax regulations.
- The difference in federal and state tax laws and what to be mindful of.
- Setting up a US bank account ready to start selling.
- How A2X can help you track your sales tax collected once you’re selling.
Registering your Business: LLC vs. Corporation Taxes
Many of Wray’s clients come to him for help setting up a business in the US, which allows them to open a US-based Amazon merchant account.
By taking this route, sellers are liable for tax rates of 1-2% rather than 2-7% for being based offshore. This could be the difference between making a profit and loss for some businesses.
The bad news: If you get this step wrong, you might be liable for US federal taxes and fees which could be significant.
The good news: If you know what you’re doing, establishing a US business entity is relatively simple.
The key: Knowing whether to register as an LLC or a corporation. An LLC tends to be simpler to manage, according to Wray, allowing business owners to pay taxes as part of their own income tax return.
Wray says that for this reason, this option will suit most smaller ecommerce sellers. This isn’t always the case though, so to be sure, Wray cautions that it would likely be cheaper to get expert help up front than it would be to fix mistakes down the line.
Consider finding an accountant to help advise you which route might be best to take.
Where to Register: Tax Differences by State
When it comes to choosing where you base your US entity, you might be surprised to learn that successful sellers often register in multiple states.
The bad news: Each US state has its own rules and regulations around sales tax, and they can differ greatly. According to Wray, most successful businesses making over $1m per year have to register in around 10-12 separate states, so some agility and research is required.
The good news: You are free to choose the location or locations of your business registration and this can positively impact your business if done well.
The key: Seek tailored advice.
Many sellers have followed suit of companies like Facebook, Apple and Coca-Cola and first registered in the state of Delaware. Wray cautions that this approach isn’t suitable for everyone - the state of Wyoming charges around $50-$250 in business regulation fees compared with Delaware’s up to $180,000.
The differences can be staggering, so it makes sense to get help.
Federal Tax vs. State Tax Laws
Unfortunately, state and federal laws around tax can clash. Generally, under federal law, as Wray explains, you need to have an agent representing your company with a physical US address to be considered liable for US taxes.
The bad news: Clashes impact Amazon sellers. Despite the fact that Amazon meets many of the criteria to be considered an agent, federal law does not recognise it as such. Many states, on the other hand, do.
The good news: Businesses can operate profitably despite these issues. It’s all about getting the right information unique to you.
The key: Understanding the requirements of the state in which you have located your entity, and staying up to date with changing federal laws.
Wray believes this is an evolving area of federal law and subject to change in the coming years with the practically inevitable and continuing growth of ecommerce.
For more information specifically on sales tax for ecommerce sellers, check out our blog, Understanding Ecommerce Sales Tax.
Setting up a Bank Account
Setting up a US bank account as an international ecommerce seller with a US-based entity seems like the logical next step. But this comes with its own complications: tax regulations and banking regulations being unrelated to each other.
The bad news: Registering a US-based business entity does not automatically entitle you to a bank account, and according to Wray, they can be surprisingly complicated to set up.
There must be a physical person for an account - i.e., they need to visit the bank themselves, with their identification, to prevent money laundering or fraud.
The good news: You should be able to set up your LLC and/or bank account through an accountant in the US.
The key: Chat to the experts.
Wray warns against opting for a service provider who offers to do this for you, because they will always retain some level of control over your accounts. This is because the bank views them as your physical representative.
Plus, if you go through another business and not an accountant, they will often set you up as a corporation, which makes you liable for tax straight away. As an LLC, you may not be.
A2X Simplifies Collecting Sales Tax on Amazon
Once you have your US entity, bank account, and taxes sorted, check out how simple A2X can make your ongoing Amazon accounting.
Integrating your ecommerce store with your accounting software is a great first step, but adding A2X as a connector between the two gives you greater detail, insight and visibility over your finances.
A2X tracks your ecommerce sales tax collected, your fees paid to Amazon, any fulfilment fees or returns reimbursed. It breaks down your deposits so that you understand where your money has come from and where it is going, ensuring that you make informed business decisions based on reliable numbers, and meet all of your tax obligations.
It will also iron out the wrinkles caused by date differences on statements, time zone and currency discrepancies, and help you reconcile your books smoothly. Wherever you are in the world, A2X can help you keep your bookkeeping organised, accurate and stress-free.
Try it today absolutely free!
