As an online retailer, you have probably heard the term “remote seller” being used in various media outlets to explain online retailers in general. However, I think this term creates a lot of confusion with small-business owners who make their living selling online via the various marketplace sites (e.g., eBay, Amazon, etc.).
The definition is particularly important when discussing Internet sales tax.
Typically the media will classify any online retailer as a remote seller, without regard to anyone in particular. Most online retailers will fall into the category of “remote seller” in some states, but not all. To properly understand this concept we must first examine the definition of each class of seller.
A remote seller, by the simplest definition, is one who has no physical connection to the state in which he or she is generating sales and shipping product. This means no storefront location, no office, no residence, no salesman and no inventory. Compare that to an in-state seller (also known as a retailer), or one who has a physical presence in the state in which they are selling or shipping product.
Physical presence is key
It is important to note that the difference is physical presence. As you can see, you can be both, depending upon the state in question. For example, I live in Houston, and I sell online via eBay.
I have sales within the states of Texas, Arizona, Indiana and Nebraska. I would be considered a retailer in Texas because I live in Texas, my business is located in Texas and I have inventory in Texas. Conversely, I would be a remote seller in the other states since I do not have any physical presence in those states.
Another example must be discussed: the Amazon seller. Let’s use the same example above, but assume that I have inventory located in Arizona and Indiana.
Using the physical presence standard, I would be considered a retailer in Texas, and more than likely would be considered a retailer in Arizona and Indiana, while remaining a remote seller in Nebraska. This is so because I own inventory in two states in which I do not live, but I conduct business in those states and have a physical presence.
As of the date this article was published, Nebraska does not have an Amazon warehouse, thus not allowing me to store inventory and not meeting the physical presence requirement.
Not a clear-cut argument
Some have argued that just maintaining inventory in a state does not meet the threshold of nexus. I argue that, as an online seller—particularly if you use Fulfillment By Amazon—you probably do meet the threshold of nexus in those states since you, as an online seller, would suffer economic loss if, say, the warehouse in which you owned inventory burned down.
True, Amazon or an insurance company of some sort could probably compensate the inventory owner, but if you’re seeking compensation for lost inventory, you must have owned it.
Remote sellers are a hot topic in the current legislative environment and, until there is a good, definite, bright-line test of where a remote seller must collect sales tax, it is wise to stick to the physical presence test in the states in which you are engaging in online sales and shipping product.
I just launched a book, co-authored with e-commerce expert Kat Simpson, about Internet sales tax and how you can be sure that you are legally compliant. Introduction to Sales Tax for Amazon FBA Sellers is available in trade paperback or Kindle versions on Amazon. You can also sign up for my newsletter and send in your own questions on this topic on my E-com Sales Tax blog.
