There are a few things I do really well. Taxes are not 1 of them. Ironic, because $$$$ is what I think about, professionally.
The issue about taxes is, a lack of expertise doesn’t stop a lot of us from getting saddled with ecom tax responsibilities.
Did I once end up being The Tax Girl at a beauty brand, with 0 experience and even less confidence? Yes, I did. File under: Never again.
Am I still shocked and relieved I didn’t bankrupt the company and end up…wherever marketers who don’t responsibly manage sales tax go? Obviously.
Being the tax girl (or boy) comes with its own invisible tax, on:
🪸: Time
🐡: Sanity
🦈: $$$, every time a customer’s wrongly taxed!!!
These days, you couldn’t PAY ME to do taxes on my own.
If you’re the tax girl (or boy) at your brand, paddling like hell as you dodge sales tax sharks, I want you to know that you DON’T have to do this alone. And, maybe, you actually SHOULDN’T. 🏄♀️🦈
This next bit is important, so I’ll say it big: *clears throat*
A BAD TAX SET-UP IS A GROWTH PROBLEM THAT CAN SINK YOUR BUSINESS 🚢
Sales tax is supposed to be a pass-through. In theory, you collect it from customers at the point of sale, then send it to the state. WITHOUT recording it as revenue OR an expense.
Sounds simple.
Unfortunately, brands screw this up. ALL THE TIME.
They don’t collect enough sales tax when they’re supposed to.
Or they collect TOO MUCH sales tax.
Or they don’t properly register in every state they were supposed to.
It’s not intentional.
Taxes are complex. (Understatement of the year.)
You have to handle them differently for every state.
What the f*ck is a nexus?! (Actually, I know that 1. Hold on.)
The goal with sales tax is to GET TO 0.
But, if you make a mistake, you’re on the hook. 🪝🦀
If you UNDER-collect, you have to pay the difference out of pocket.
If you OVER-collect, you have to refund customers (and probably pay penalties, too, like SKIMS in New Jersey this year).
Then, just like like that, what should’ve been your CUSTOMER’S liability now comes out of YOUR revenue.
Imagine killing it during BFCM, then going into the red paying back-taxes you never should’ve owed in the 1st place…nightmare fuel. (Ask me how I know!!)
If you’re the tax girl (or boy), promise me you won’t let this happen. Promise you’ll get help, if you need it. ASAP.
5 SIGNS YOU MIGHT BE IN TOO DEEP + NEED TO SEND A TAX SOS 🛟
As previously stated, I’m a recovering accidental tax girl.
So, to put together today’s early-warning system, I reached out to Zephyr, an ACTUAL PROFESSIONAL ON-PURPOSE TAX GIRL at Anrok. She and her team handle taxes for some of the biggest brands on earth. Including Anthropic, plus several of those ecom biggies we’re all trying to beat.
I asked Zephyr: what are some signs that someone might be in over their head on taxes, without knowing it?
If you fit any of these criteria, you might need to bring in some tax help.
(Zephyr’s here, if you need her.)
1️⃣. You’ve got employees, stores, inventory, and/or transactions in multiple states.
Ah, the dreaded nexus between biz and state that triggers tax exposure. (Is my 1 year of law school showing?)
Physical nexus: Starts immediately and has NO revenue minimum. If you’re physically in a state, even through a FBA, 3PL, or warehouse, you have to register and follow the rules.
Economic nexus: Triggered by hitting an annual revenue limit, transaction count, OR both. FUCKN! 😵💫
Tax exposure’s the default, so this is confusing and important. My least favorite combo.
2️⃣. You thought Shopify or Amazon was handling sales tax.
I LOVE Shopify. But Shopify is THAT girl, not a tax girl.
In fact, it sets up a maximum default tax rate to get you started, but YOU are responsible for making sure the rate’s current and correct.
And, if you just go along with that maximum default tax rate – perhaps it feels safer, which is a reasonable assumption – it’s only going to tank your margins. And worse, cost you revenue later when you have to pay back customers.
As for Amazon? It only covers Amazon. Plus, on the subject of collecting tax you shouldn’t, remember that in some states (Texas, California, Illinois, etc.), you’ll owe a $0 return even when a marketplace collects for you.
NEITHER Shopify nor Amazon registers you in all the appropriate states, files your returns, or sends the money in on your behalf.
3️⃣. You offer returns.
When a customer returns an item, you must also refund the sales tax you already sent the state.
Most states let you net it against a future return. Some are difficult and make you amend the original filing.
Connecticut won’t refund sales tax on returns after 90 days, so that’s your loss.
Who can keep track of all this?! EXPERTS, that’s who.
4️⃣. You’ve crossed $1M+ in national revenue and plan to keep growing.
Congrats! You might suddenly owe taxes in 10+ states at once. Sorry!
Tax exposure scales faster than your business. The bigger you get, the more work it takes to comply. Every big milestone opens you up to new tax liabilities. For example, $5M+ in annual sales means ~39 filings a year. But $50M+? About 100 filings.
Tax exposure = when you cross nexus for the 1st time, most states require registration and sales tax collection on the NEXT transaction. Your million-and-oneth dollar, if you will.
But to keep things interesting, some states have a grace period for registration. New York gives you 30 days. Texas gives you 3 months.
Sometimes tax collection starts the 1st of the month or the 3rd waxing crescent moon or something. I can’t believe a brand thought I should be the tax girl. WTF.
5️⃣. You sell products in tax “gray areas.”
Some states don’t charge sales tax at all on clothing & shoes beneath a certain threshold. In New York, it’s $110. In Massachusetts, $175. In Rhode Island, $250.
In some states, clothes are exempt, but accessories aren’t. A long dress won’t get taxed, but a gown’s classified as taxable formalwear. (As if random guys at some state department of taxation can even tell the difference…)
Same thing for personal care. Dandruff shampoo isn’t taxed, but “clarifying” shampoo is.
The EXACT SAME sunscreen is an untaxed OTC health product in Texas and a taxed grooming item/cosmetic in California. 🤯
Can you keep track of all these picky little rules on your own?
TAXING, ISN’T IT?
It doesn’t take an expert to realize taxes are HARD! Stressful! Capable of WIPING OUT hard-earned revenue, if you don’t follow all the rules.
If you’re the tax girl (or boy) and feel 100% confident that you know what you’re doing, godspeed. I don’t know how you do it. Much respect. Some concern.
But if you realize you’re out of your depth, get tax help BEFORE BFCM, so you can keep all that revenue you’re about to drive.
And, if you know another tax girl (or boy), please forward this email. Growth dogs don’t let other growth dogs drown (or doggie-paddle) in back-taxes. Unless they’re competitors Woof.
Let’s get to 0,
Ari
