Although Envato cannot offer you any specific tax advice, this article will give you an overview of US sales tax and how we can assist you to meet your tax obligations.
What is US Sales Tax?
This article is not a full definition of US sales tax. To put it simply, sales tax is a consumption tax imposed by US states and territories on sales within their jurisdiction.
In the USA, sales tax rules are governed separately by individual states. There are different rules relating to the types of goods sold, the location of the buyer and seller, which types of sellers are required to collect Sales tax and many other variables.
A seller may have to collect sales tax at the point of sale when the sale is to a buyer located in a state where:
- The seller has "sales tax nexus" (more on this in the Author section below), and
- The item that is being sold attracts sales tax in that specific state.
How can Envato help?
As a marketplace platform, we want to help US authors to meet their obligations. We think we can do a better job of that by offering a tool to enable authors to collect sales taxes on top of the relevant transactions. Whether or not authors use this tool is entirely up to them.
Below is an overview of the tool we will be launching, and how our US authors can use it.
The key features of this tool are:
- The ability to configure the tax rate for each state where they plan to collect sales tax.
- The tool will calculate the sales tax for purchases made by customers who are located in the states that have been configured for sales tax by the author. The calculated amount will be added as sales tax to the existing item fees.
- Clearly presented amounts of sales tax collected on an author’s behalf on the statement/earnings account summary. The information will also be available on the downloaded csv statement as well as each affected invoice and credit note.
- If the tool is turned on by an author, sales tax will be applied where relevant (when both author and customer are located in the same US state) to item purchase and bundled support.
This tool will not:
- Remit the tax collected to any state tax bodies. This is the responsibility of the author.
- Register any authors for sales tax purposes. This is the responsibility of each individual author.
- Keep or store the additional funds (collected through the tool) separately from an author’s earnings.
How do you use the tool?
To enter in your tax rates:
- Visit your profile and navigate to the US Sales Tax option in the Author Tools section under Settings
- Select your state from the dropdown list
- Enter a tax rate and press ‘Apply’.
The system will begin collecting sales tax from buyers in the states you have selected.
What is Sales Tax Nexus?
A “nexus” is a fancy word for describing a connection within the transaction that would trigger the need for US sales tax.
The definition of sales tax nexus (where your business has a connection to a state/region) varies from state to state, but some reasons why you may have nexus in a state include
- where you are located,
- where you have employees, or
- where you have an office or studio.
For most individual authors, “nexus” will likely just be in the state where you live. If you are an author team with members or an office located in different states, it may include those states as well. This mean that, for your sales to customers who are also located in those specific state(s) you may need to collect sales tax—depending on the local tax laws.
Eg. If you are based in California, you may need to collect sales tax on your sales to other customers in California.
This means that, as an author, you may be required to collect sales tax on all items sold to customers in any state where you have sales tax nexus and where the item is subject to sales tax.
As sales tax is a complex topic, we recommend you contact a tax professional to determine your responsibilities regarding this matter.
Here’s an example of Sales Tax nexus
An author has configured a nexus in Arizona with a sales tax rate of 6% and they have a presentation template for sale with a list price of $18 including a buyer fee of $3.
This will result in the following:
Amount buyer is paying the author for the item
Item sales tax
Sales tax of 6% on the item
Any Sales tax collected on your behalf will need to be remitted to the state’s tax office. In the example above, this would be Arizona.
What will you need to do?
You will need to contact your tax advisor to understand your obligations in relation to collecting and remitting sales tax. Although the advice you receive will be specific to your situation, here are some questions you might want to ask your advisor:
For each state that applies to your business:
- Are the items you sell taxable? (For most Envato US authors, the answer is probably yes, but check the details for your state and situation.)
- How much sales tax should you charge? The rates vary by state and by county, so check with your accountant or relevant state authorities to find out.
- Do I need to register with a state authority before instructing Envato to collect sales tax on my behalf and, if so, how?
- Based on the advice you receive, you can configure your Envato profile with the relevant tax rates in the states where you have nexus.
As an Envato customer for whom the US state sales tax applies, you will be able to see the addition of sales tax when you arrive at the checkout of an item.
What will I see?
Customers buying an item will see the amount of sales tax in their shopping cart (but not on the item page) and on their invoices & statements . Sales tax will be a separate line item on your invoice.
What if I am Sales Tax exempt as a customer?
If you are sales tax exempt, you will need to contact firstname.lastname@example.org with details of your exemption. Note: You will only be charged sales tax on an item if the author of that item is operating in your state for tax purposes.