Amazon Sales Tax Treatment in the US

For retailers whether it's online or in physical stores sales tax is a reality. Being an Amazon FBA seller you have to collect tax from your customer on behalf of the state.


Amazon being the concept of a new era brings technicality to the related services such as accounting ad taxation. Amazon tax treatment is more complex for amazon FBA sellers than the normal retailer.


What we would try to explain


  • What is Sales Tax and FBA seller sales tax?

  • Why do Amazon FBA sellers need to collect tax from its customer

  • Compliance with sales tax law

  • Where to submit sales taxes you have collected


Sales tax are indirect taxes that are collected by the seller from the end consumer and is submitted to the government.

FBA seller Tax:

Sales tax that FBA sellers are bound to collect from their customers. For sales tax purposes FBA seller is considered a retailer and is bound to collect sale tax from their customer.

Why do Amazon FBA sellers need to collect tax from its customer

Amazon sellers like other E-commerce sellers are considered retailers for the purpose of sales tax. They have to collect taxes and file the sale tax return and sub, the taxes collected from their customer. Every amazon seller is bound to collect tax in a state if the two criteria are met for the state:

  1. Sale tax nexus

  2. The product is either taxable or exempt

  1. Sale tax Nexus:

    This is a legal word used to represent the connection between taxpayers and the state before the state has the responsibility to tax taxpayers. In another word, it is the jurisdiction of the state to collect and impose a tax on taxpayers.

Through the supreme court 2018 decision, physical presence was required in the state for sale tax and USA tax nexus.


For Amazon FBA sellers if you are in-state nexus, you have to collect tax from your buyers for the state. One always has tax nexus in their home town but certain circumstances and business activity created nexus in other states too.


Condition and circumstances to have sales tax nexus in other states;

  • Inventory: If you have an inventory store located in the state even though you don’t have business management and further business activity you are considering in the same state nexus.


  • Business employees: if you have employees, a sales force contractor, and another person responsible for running your business activities.


  • A drop shipper: if you have a drop shipping relationship with someone who resides in the state you have nexus in that state too.


  • Trade event and festival sale:  Some states consider the temporary sales to have nexus


  • Affiliate: Someone who advertises your product and taxes part of profit in some states it also creates nexus.


  • Economic nexus: if you exceed the monetary threshold of sale set by the state. The nexus of the business is considered in the same state.

Inventory storing and amazon FBA Nexus:

The nexus created by inventory holding is most relevant for amazon FBA sellers. 

As a normal perception if you are using the resources of the state for shipping and more considerably you must have nexus in the same state. This exactly works for amazon FBA sellers.


In simple words, you have nexus in the same state where you store amazon FBA inventory in the Amazon fulfillment center.

Amazon fulfillment center:

Amazon fulfillment center is the facility to access the amazon logistic network. Amazon Businesses gives products to Amazon fulfillment centers and when a customer makes a purchase, amazon handle receiving, packaging, shipping, customer service, and returns for those orders.

List of states having amazon fulfillment centers:

  • Arizona

  • California

  • Delaware

  • Florida

  • Indiana

  • Kansas

  • Kentucky

  • Maryland

  • New Jersey

  • Pennsylvania

  • South Carolina

  • Tennessee

  • Texas

  • Virginia

  • Washington

  • Wisconsin.

Market place facilitator law: 

 

No there is a marketplace facilitator law in many states that make the marketplace such as Amazon, Shopify, eBay, etc has the responsibility to collect on behalf of the seller.

  1. Product taxability:

Now if you have confirmed your nexus fall in which states the next criteria is to check for product taxability, whether the product you are selling is taxable or not. 


All tangible products are taxable and the non-tangible that is services are nontaxable. But there are exceptions depending upon the state. There are products that are either not taxed or taxable at different rates.

There are states that offer product-specific exemptions for categories including food, clothing, prescription medicines, and medical (prosthetic) devices. Those states that don't provide a complete exemption for these items often impose a lower tax rate on them.

Sales tax compliance: 

Once you have found the right nexus, now you have to register with that state. In, order to collect the tax you have to register otherwise it is considered illegal to collect tax without registration.


Once you get registered you get a permit, frequency, and due dates for filling the sale tax return. The filling frequency may be monthly, quarterly, or annually depending upon your sale volume.


As the volume of your sale increases more states want you to file taxes fastly. In other words, the frequency of sale return is correlated with your sale volume. To comply with sale tax it's a technical exercise you need an accountant/Bookkeeper to make tax compliance on your behalf.


Collecting Tax on Amazon FBA: Amazon has a centralized set of tax collection systems. Amazon user-friendly interface allows you to add tax codes for products. This allows you to charge the right amount of tax on the right items.

Amazon Tax setting and Tax reports:

When you login into amazon seller central follows the following instruction.

  1. Go to setting

  2. Then in setting go to tax setting 

  3. From the drop-down menu view/edit your tax collection, shipping, handling, and gift wrap obligation.

Here you can select which state, or county tax to collect. Here you also set up the tax rates for different items. Amazon has a free set of closed tax rates which you can access here and apply accordingly.

Reports and filing:

From Amazon, you can extract tax reports by going to reports than payment, and generate date range reports. Here you can find the sale tax you have collected for each county and state.


Online filing: By logging in to tax authority software through the registration you can file a sale tax return. It can also be done automatically through accounting software.

Things to remember:
 

  • File the tax return in the state you have a permit of even if the marketplace is collecting it for you.

  • Always file a tax return “Zero returns” even if you don’t have collected sale tax. States required all having permits to file sale tax returns whether they have collected sale tax or not.

 Message us on WhatsApp