SKIMS had to pay New Jersey $200k for the same reason my dad does my taxes for me.
A few months ago, SKIMS had to pay New Jersey a $200,000 tax settlement.
Not for evading taxes! For collecting tax when they shouldn’t have.
SKIMS is a multi-billion-dollar brand (as you know), with vast resources to catch this kind of thing. But, they still missed it.
And I’m…actually NOT surprised. Because this stuff is very, very easy to get wrong.
Today, I’ll share:
What happened with SKIMS +
My own tax story +
How to avoid this taxing fate, before it’s too late.
And, even if you’re not at SKIMS’ size and let’s say you’re flirting with the first big tax cliff, this 1 is also for you.
At least worth the forward to your CFO.
Either way, let’s talk turkey taxes.
ON THIS EPISODE OF KEEPING UP WITH KOMPLIANCE
This whole case hinges on a tiny product classification:
- From 2019 to 2024, SKIMS charged New Jersey shoppers sales tax on swimwear.
- Their system was classifying swimwear as “athletic apparel,” which IS taxable in NJ.
- But in fact, New Jersey classifies swimwear as “clothing,” which is tax EXEMPT.
Easy mistake…but when it comes to taxes, easy mistakes are still expensive.
For SKIMS, $200k is just the tip of the iceberg:
+ Finance hours to figure out what was collected, remitted, and what’s owed now
+ Refunds to every affected NJ customer, for 5 years of transactions
+ Engineering to rebuild the classification logic
+ Legal bills + legal audit to catch what else is hiding
+ A gnarly PR situation all around (no thank you)
If this can happen to a brand worth billions, what can the rest of us do?
Well – a lot, actually. I’ll get into that.
But first, STORY TIME:
CONFESSIONS OF A RELUCTANT ACCOUNTANT
This 1 is a little personal to me, because when I was 27, I suddenly found myself responsible for sales tax at a new beauty brand.
I didn’t know anything about tax. I still don’t. Shout out to my Dad for doing my tax returns
But someone had to do it, and I was the 1 left holding the bag.
So, I became…the tax girl.
It was 2020. We were hitting the thresholds in new states every few days (the only time I’ve ever been sad about growth). That meant new states I had to not only remember & budget for, but register and file for! If you’ve never had to do that, congrats. If you have: I hope neither of us has to wait on the phone for a state’s department of revenue ever again. Or even THINK about fax machines.
I had to find a bookkeeper. Do you know who doesn’t know how to find a bookkeeper? ME. I had to learn what Avalara was. It was not great! Avalara, I mean.
The bookkeeper, by the way, was my Dad’s. I never said I was stupid. 🙂
From there, I went on to an agency, and spent 4 years choosing tax software for every brand we launched, including a celebrity brand that went live in 30 countries on day 1. No pressure in recommending tax software there, right?
What I learned from these experiences:
- There is no such thing as a “safe” tax option. Only correct or incorrect. (and “incorrect” = “expensive”)
- Defaulting to the highest tax does NOT protect you. (It also nerfs your top-line numbers). If you don’t choose, they’ll choose for you and by they I mean Shopify, and by for you I mean it’ll automatically pick the most expensive option. If you operate in total sales minus taxes like I do as your topline #, this is a massive and important step in your product setup!
- At a certain point, it’s impossible to DIY.
The mental load of compliance at this scale is not something you forget. It’s why I choose a solution like Anrok (the people who handle taxes for Anthropic and Notion) to step in.
MY MISSION TODAY: to prevent YOU 🫵 from accidentally becoming the tax girl or tax boy of your brand. Unless you want to be an accountant, and in this case you are stronger than I could ever be.
4 REVENUE CLIFFS TO KNOW
Sales tax obligations do NOT scale with you gradually.
They lie in wait until you cross a specific revenue threshold, and then they show up all at once to ambush you in a dark alley.
When you cross $1M in national revenue, you could wake up owing tax in 8, 10, 12 states at once.
The revenue tipping points to know:
- $100k: the typical single-state threshold for triggering sales tax
- Under $1M: typically 1 state, ~2 filings/year. (Manageable!)
- $5M+ ~39 filings across 8-10 states. (NOT manageable.)
- $50M+: 100+ filings, 28+ jurisdictions. (*sirens sounding in the distance*)
And not only that, but…
SHOPIFY WON’T SAVE YOU
Listen, I love Shopify! Shopify Plus for life. It’s all I use. But even though it WILL calculate and collect tax at checkout, you are on your own for registration, filing, and remittance.
Oh, and if Shopify’s product categorization is incorrect for the state you’re selling in? YOU are on the hook, not them! (See: SKIMS.)
Then, 3PLs enter the mix: inventory just being STORED in a state counts as having a physical presence (“nexus”) there. That’s another tax trigger. Fuck us right lol.
For example, Amazon has fulfillment centers in 35+ states.
So, if you sell on Amazon, you potentially have nexus in 35+ states.
(States actively pull 3PL warehouse records, BTW. So, THEY know where your stuff is. The question is whether YOU do. More info here.)
100% REAL TAX RULES:
Lest you think this SKIMS situation is a fluke, please meet some of my favorite 100% real tax rules in this rundown of clothing sales tax:
- In NJ/PA, a bowling shirt is exempt – but bowling shoes are taxable.
- In NY, clothing UNDER $110 is fully exempt. But after $110, you owe the full tax on the ENTIRE amount.
- In PA, a $5,000 bespoke suit is exempt because it is “everyday ordinary wearing apparel,” but a $100 polyester tux rental is taxable as “formal day or evening apparel.”
- In multiple states, real fur is taxable…but ONLY if the fur value exceeds 3X the value of the next most valuable component in the item. Which of course changes when the price of materials change.
Forever 21, Chewy, and Peloton are ALL tangling with this “same product, different (tax) rules” pitfall. Amazon is facing a $12M assessment from South Carolina for a single quarter in 2016.
And that’s just in the US! If you’re selling globally, VAT & GST & tariffs are all there to get you, iceberg-style, ready to ruin your day.
AUTOMATION STATION
My point: there’s no level of “careful” that makes this DIY-able at a certain scale.
Personally, anything over $1M, and I’m calling in the tax automation cavalry. (Paranoid? Maybe, but I’m in my “I’m Never Touching Taxes Again, THANKS” era.)
At 7, 8, and 9+ figures, you should be focused on hitting your numbers and scaling. Not *checks notes* nexus monitoring across states, registrations, filings, remittances, or having audit-ready records.
Not when Anrok does all of them already, for some of the biggest brands on earth. In 1 solution, globally, instead of multiple regional tools stapled together.
They also have a AI tool called Atlas, which will flag exposure in your tax setup before you find out the hard way.
NEXT STEPS TO TAX SAFETY
My recommendations, by revenue band:
🥬: APPROACHING $1M
- Pull a state-by-state sales report for the last 12 months. Prioritize registration for anywhere you’re close to $100K.
- Pull your 3PL’s inventory location report, and make sure every state your inventory touched is on your list.
🧀: $1M to $10M
Look up Voluntary Disclosure Agreements (VDAs) in any state you’ve crossed and not registered in. They’ll tell you how far back the state can audit you.
Also: book a free compliance assessment with Anrok. In 30 minutes, you’ll leave armed with info about where you really stand.
🍞: $10M+
Manual processes here are both unsustainable and dangerous. I say this with love: the math is not in your favor. Talk to Anrok yesterday.
Sales tax oversights aren’t the kind of problem YOU find. They are the kind of problem that finds you. Sometimes in a press release. I’d like to prevent that.
Don’t let yourself become the tax girl. Get your checkup with Anrok. I believe in you.
