Picture this: You’ve spent months researching, sourcing, and testing a new product. You’ve poured your heart and soul into your Amazon FBA business, and you’re excited to launch your product and start generating sales finally.
But then, a few weeks after your first sale, you receive a notification from the state taxing authority informing you that you still need to collect and remit the appropriate sales tax.
Suddenly, your excitement turns to confusion and frustration as you realize you’ve violated complex requirements unwittingly. This scenario is all too common for Amazon FBA sellers, highlighting the importance of understanding and complying with laws.
In this guide, we’ll provide you with everything you need to know to stay compliant with Amazon FBA Sales Tax, from understanding the basics to collecting sales taxes from the proper authorities.
- Obtaining a sales tax permit is crucial for compliance with state and local tax laws and avoiding penalties.
- Understanding the taxability of your products and setting up tax collection settings is essential for collecting the correct sales tax amount.
- Keeping accurate records and filing sales tax reports on time is necessary to avoid penalties and ensure compliance with tax laws. Consider using sales tax automation software or consulting a tax expert to simplify the process.
Amazon FBA Sales Tax – Understanding the Basics
Understanding the core principles of Amazon FBA Sales Tax is a crucial starting point before delving deeper into the topic. Sales tax is a compulsory charge levied by state and local governments on the sale of taxable goods.
As an Amazon FBA seller, it falls upon you to ensure sales tax collection and payment on the sales of taxable items, contributing to your overall business income.
It’s also important to consider the concept of a “sales tax exemption”. This can offer a reprieve from sales tax under specific conditions, depending on the laws of the federal government.
Ensuring a smooth business operation involves adhering to sales tax requirements and taking advantage of possible exemptions when applicable.
Why Should Amazon FBA Seller Collect Sales Tax?
Amazon FBA sellers must collect sales tax to comply with state and local laws. Failure to have and remit sales tax collection can result in fines and penalties.
Also, an FBA business collects sales tax, which helps you avoid legal and financial issues, maintain your reputation as a trustworthy seller, and meet your tax obligations.
There are several reasons why sales tax collection is important to an Amazon FBA seller:
- Compliance with state and local laws: It’s essential to comply with state and local sales tax laws to avoid penalties and legal issues. Non-compliance can lead to audits, fines, and other penalties affecting your business’s financial health.
- Avoid customer disputes: If you don’t charge sales tax from customers, they may be surprised by additional charges on their credit card statements. The other changes can lead to customer disputes, negative feedback, and lost sales.
- Level the playing field: Collecting different sales taxes helps level the playing field with local retailers who must remit sales tax. This field can help reduce unfair competition and protect local businesses.
According to Fulfillment by Amazon (FBA) fees in 2023, on January 17th of 2023, any items delivered to Amazon fulfillment centers within the US will be subjected to new fees. This policy applies uniformly and guarantees that all products are affected similarly.
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To comply with Amazon FBA Sales Tax requirements, you must understand the sales tax nexus, obtain a sales tax permit, and comply with sales tax filing frequency and due dates.
Sales Tax Permit
A sales tax permit is a document issued by state tax authorities that allows you to collect sales tax on taxable items sold in that state. It is also a sales tax license, seller’s permit, or resale certificate.
How To Register The Seller’s Permit?
Registering for a sales tax license is crucial for Amazon FBA sellers. Here are the steps you need to follow to register for a permit:
Step 1: Determine where you have a sales tax nexus
As mentioned, you must determine where you have a sales tax nexus before registering for a license. Once you decide on your nexus states, you must register for a seller’s permit in each state. You can refer to the list of states with an Amazon Fulfillment Center in 2023 below.
Step 2: Gather the required information
Each state has permit registration requirements. Generally, you will need to provide your business information, such as your business name, address, and federal tax ID number, as well as information about the owners and partners of the business.
Step 3: Fill out the application
Once you have all the required information, you can fill out the sales tax permit application for each state where you have a nexus. You can do this online through the state’s Department of Revenue website.
Step 4: Wait for approval
After submitting your application, the state will review, approve, or deny it. If approved, you will receive your permit.
Each state has its laws and registration requirements, so it’s essential to research and stays up-to-date on any changes.
States with an Amazon Fulfillment Center
If you have inventory stored in an Amazon fulfillment center in a state, you may have a sales tax nexus and pay sales tax in that state. Amazon has fulfillment centers in various states across the US. Here is a list of states where Amazon has fulfillment centers as of 2023:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Carolina
In the next section, we’ll discuss product taxability and how to comply with sales tax on Amazon.
Understanding product taxability is crucial to collecting the correct sales tax amount on each item sold. Each state has its rules regarding what is taxable and what is not. You can use Amazon’s Tax Settings to set up different tax codes and charge sales tax for each product.
3 Tips to Comply with Sales Tax on Amazon
Complying with Amazon FBA Sales Tax can be complicated and time-consuming, but ensuring you’re meeting your obligations is crucial. Here are three tips to help you comply with sales tax on Amazon:
#1: Stay up-to-date with regulations and changes
Sales tax laws can change frequently, and staying up-to-date with the latest developments is essential to ensure compliance.
This includes understanding the laws in each state where you have a sales tax nexus and keeping track of any changes that may impact your tax obligations.
One way to stay informed is by subscribing to sales tax updates and newsletters from state tax authorities or reputable sales tax resources.
You can also consult with a tax professional to ensure that you are up-to-date on your tax obligations and can avoid any costly mistakes.
#2: Use sales tax automation software
Sales tax automation software can be a valuable tool for Amazon FBA sellers, especially those who sell in multiple states.
With automated sales tax tools, you can ensure the process of calculating sales tax on your sales, collecting sales tax from customers, and filing the sales tax return, also an income tax return.
Several sales tax automation software options are available, each with features and a pricing structure. Some popular options include TaxJar, Avalara, and Vertex. Consider your business needs and budget when choosing a sales tax automation software.
#3: Keep accurate records of your sales and tax obligations
Keeping accurate records of your sales and tax obligations is crucial for sales tax compliance. It includes tracking your sales in each state, calculating the appropriate sales tax rate, and keeping records of any exemptions or tax credits you may qualify for.
You should also keep detailed records of any sales tax returns filed. You can stay organized and make reconciling any discrepancies that may arise easier.
Accounting software like QuickBooks or Xero can help you keep track of your sales and expenses. No stress anymore. Manage your finances and stay on top of your tax obligations.
How to Collect Amazon FBA Sales Tax?
Once you have obtained a sales tax permit, you can begin collecting sales tax from customers. Here are some steps you can take to ensure you’re collecting sales tax correctly:
Step 1: Set up your tax settings
In your Amazon Seller Central account, go to the “Settings” tab and select “Tax Settings”. You can set up your default tax settings about Tax Collection, Shipping & Handling, and Giftwrap Tax Obligations Settings. Also, you create different product tax codes with varying tax rates.
Step 2: Determine your tax collection requirements
Each state has different rules for sales tax collection. Some states require you to collect sales tax based on the product’s destination, while others require you to gather based on the origin.
Step 3: Collect sales tax at checkout
Amazon allows you to collect sales tax from customers at checkout automatically. When a customer purchases, the sales tax is added to the total price and managed by Amazon. You don’t need to worry about calculating or collecting the tax yourself.
Step 4: Keep track of sales tax collected.
Keeping track of the sales tax you collect from customers is essential. You can view a combined sales tax report in your Seller Central account, showing each state’s total sales tax collected. You can also view a date range report to see sales tax collected during a specific period.
Step 5: Remit sales tax to state and local governments
You’re responsible for remitting the sales tax you collect to the appropriate state and local governments. Each state has different filing frequencies and due dates, so staying on top of your filing obligations is essential.
You can file and remit sales tax directly through your Amazon Seller account or use a third-party service to help you.
Step 6: Understand the economic nexus
Economic nexus is a sales tax law that allows states to require out-of-state sellers to collect and remit sales tax if they meet certain sales volume thresholds.
As an Amazon FBA seller, you may have economic nexus in states where you don’t have a physical presence. Staying current on economic nexus laws is essential to collect and remit sales tax correctly.
How to Report and File Amazon FBA Sales Tax
Reporting and filing sales tax can be a complex process for sellers, but it’s essential to ensure you comply with state and local laws. Here are some steps you can take to report and file Amazon FBA sales tax:
#1: File sales tax return
You must file sales tax returns in every state with a sales tax nexus. As mentioned, each state has different filing frequencies, from monthly to annually. Staying on top of your sales tax obligations is essential to avoid penalties and interest charges.
#2: Use master product tax codes
Amazon provides a master product tax code for common product categories. These codes help ensure you charge each product’s correct sales tax rates. You can also create product tax code for special tax rate.
#3: Understand tax deductions
Some states allow you to deduct certain expenses, such as bad debts or sales returns, from your sales tax liability. Understanding the tax deductions available in each state where you have a sales tax nexus is essential.
#4: Keep track of tax documents
It’s essential to keep track of your tax documents, including sales tax permits, exemption certificates, and sales tax returns. You can access these documents in your Amazon Seller Central account’s tax document library.
Collecting and remitting sales tax can be a complex process for online sellers, but it’s essential to running a compliant and successful business on Amazon FBA.
By understanding your tax obligations, setting up your tax settings correctly, and keeping accurate records, you can ensure that you’re collecting and remitting the correct amount of sales tax and staying in compliance with state and local sales taxes.
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Frequently Asked Questions (FAQs)
Does Amazon charge fees on sales tax?
No, Amazon does not charge any fees on sales tax. The sales tax that Amazon collects from your customers is held in a tax collection account and passed on to you to remit to the appropriate state and local governments.
What tax information is needed for Amazon Sellers?
To sell on Amazon, you must provide your tax identification number (TIN) and other tax information, such as your business address and legal name. You may also need to provide information about your sales tax nexus and the states where you have a sales tax obligation.
How do I get my Amazon seller tax form?
You can access your tax documents and reports in your seller central account under the tax document library. Then, you can download your Amazon sales tax report and other tax-related documents.
Why doesn’t Amazon have to pay taxes?
Amazon is subject to the same state and local regulations as any other online seller, but it is not responsible for paying sales tax on behalf of third-party sellers. As a result, it’s up to individual sellers to collect and remit sales tax on their sales.
How to calculate sales tax?
Sales tax rates can vary by state, county, and city, so calculating the correct tax rate can be challenging. One way to simplify the process is to use a sales tax calculator or software solution, which can automatically determine the correct sales tax rate based on the location of the sale.
Do Amazon selling fees include VAT?
Amazon’s selling fees do not include VAT (Value Added Tax). Suppose you’re selling in the European Union (EU). In that case, you may be subject to VAT on your sales, and it’s your responsibility to register for VAT, collect the tax from your customers, and remit it to the appropriate tax authorities.