All sellers using the Amazon FBA service must comply with Amazon’s sales tax rules. These days, almost all online purchases are subject to tax. Sellers can get into legal trouble if they don’t collect and pay their taxes. As you can see, in recent years, the Amazon platform has grown significantly. Mainly due to the epidemic of Covid-19, many people have resorted to online shopping. Amazon is trying to create a service for sellers, attracting sellers compared to other platforms. Here, everything you need to know about Amazon and taxes is explained.
What is sales tax on Amazon FBA?
Sales tax has a simple definition: sales tax when you buy a service or product. When you sell taxable items on Amazon FBA, you must register with Amazon to collect sales tax.
Registration is important before you start collecting sales tax because even if your intentions are pure, the state considers it illegal to start collecting sales. tax without authority. After you receive your permit, you will be assigned a sales tax date and sales tax reporting period.
Your payment schedule is determined monthly, quarterly or annually, depending entirely on your business. If your sales decrease or increase significantly, your state may offer you a new filing frequency over time.
Do all Amazon sellers have to pay sales tax?
Sales tax is a bit of a mystery to many sellers, especially those who use online auction listings for their FBA business. Every Amazon seller in the United States must file taxes by March 15 for their Amazon transactions. There is a “Tax Information” section under your “Seller Central” account on Amazon where you can enter your data. However, these are the cases:
- A seller, who has a minimum of 50 transactions, must provide Amazon with their tax returns. They could lose their right to sell on Amazon if they don’t. Additionally, if an Amazon seller has a business of 200 people and $20,000 in revenue, they will receive a 1099-K form from Amazon. Along with annual and monthly market share information, the IRS is provided. Also, it includes shipping and sales tax.
- Depending on the state you live in, it may be possible to sell tax-free on Amazon without worrying about paying sales tax. So before you start selling, check your local tax laws. Remember that sales taxes on almost all physical products in the United States change from time to time.
- 5 US states do not require sales tax, called NOMAD for short: New Hampshire, Oregon, Montana, Alaska and Delaware.
- Generally, you can sell on Amazon without paying sales tax. For example, groceries, supplements, clothing, and books. However, a few states also charge tax on these products. For example, Mississippi, Oklahoma, Alabama, Kansas, and South Dakota collect sales tax on food and clothing.
- You can get a sales tax break when you search for products to sell on Amazon. You must provide your carrier with a resale certificate, which is a smart way to save money.
When do FBA sellers collect sales tax?
Like other e-commerce sellers, Amazon FBA sellers are subject to sales tax. Amazon FBA sellers must meet two criteria to collect sales tax in the state where they sell products:
1) Link to sales tax
“Essential connection” in the state has an elegant way of law like “sales tax connection”. Buyers in any state where you connect will be charged sales tax. Your sales tax nexus is always in your home state, but it is possible that the company’s operations create nexus in other states.
Ways to get a sales tax bond in different states
- Affiliates: In most states, anyone who advertises your product in exchange for a profit creates a link.
- Economic ties: Your business number exceeds a state-mandated number, or your sales exceed a state-mandated dollar amount.
- Location: store, office, warehouse, or other physical presence of the business
- Selling the product at a trade show or other event: If you sell the product temporarily in certain states, they consider you to have a connection.
- Employee: Anyone who works for your business as a salesperson, employee, installer, contractor or otherwise.
- Inventory: Storing inventory for sale in a state creates links to multiple states, even if you don’t have a place of business or other employees.
Nexus and Amazon FBA Inventory
The last point mentioned above, storing products for sale in the state is important for Amazon FBA sellers. You should know your state’s opinion on sales tax laws. They believe that an online seller who uses public facilities and infrastructure such as public safety, roads for delivery, etc., has a connection. Amazon probably won’t store your merchandise in any state where it has an Amazon fulfillment center.
Important exceptions to FBA rules
There is a Facilitator Act in almost every state where Amazon has a fulfillment center. Under the Market Facilitators Act in those states, online stores like Amazon are responsible for collecting sales tax instead of retailers. So it is very useful for online sellers because Amazon will collect it and submit it to declare on their behalf.
2) Product tax
The next step after determining your affiliation with the state is to determine the tax rate of your sales. Generally, your tangible assets are taxable, while services are not. Also, some states have different tax laws for some common types of products, such as textbooks, groceries, clothing in some states, and even some do not tax. For example, goods and clothing are tax-free in Minnesota, while in Tennessee they are taxed, but at about 5%.
How do I comply with sales tax?
When it becomes clear that you are selling a taxable product and you have identified your connection to the state, you will collect sales tax. You need a state permit before you can collect sales tax, so registration with that state is required. The next step will be to assign sales tax to the sales tax filing period based on sales volume, whether monthly, quarterly, or annually.
How is Amazon FBA sales tax calculated?
Depending on your region, city, county, and state, the Amazon FBA sales tax rate will be determined. You can get the combined tax rate by adding the sales tax rate for each level. Basically, the basis of Amazon’s sales tax calculation is the rate expressed as a percentage of the product’s selling price. Also, depending on the jurisdiction, the combined tax rate varies.
For example, in Garland in 2020, the TX Combined Sales Tax includes Garland Sales Tax (1%), Texas State Sales Tax (6.25%), and Special Sales Tax (1%), which is a total of 8.25%. In another similar example, the additional sales tax for Dayton includes Montgomery County Sales Tax (1.75%) and Ohio State Sales Tax (5.75%) for a total of 7.50%.
Using the link below, you can calculate the sales tax for any state or city of your choice:
Also, different states charge sales tax rates depending on the destination, some from the beginning, and you should carefully check the tax policy of each state where you are shipping your products. Here are the details for each of them:
- Origin-based sourcing:
It does not matter where the product is produced or shipped. Where you sell your products to your customers is taken into account for calculating sales tax.
- Destination-based sourcing:
Regardless of where your business is located and when you sell the item, the buyer’s local rate calculates sales tax.
How do I enter and declare Amazon FBA sales tax?
- A) Amazon FBA sales tax is collected
There are three different tax reporting options:
- Marketplace Tax Collection Report:
This article is not commercial or for informational purposes only. It shows the sales tax collected and submitted for the prescribed laws in the state sales tax collection. Remember not to use this report to file sales tax.
- Sales Tax Collection Report:
The sales tax calculation report displays tax liability and sales tax rate information based on your tax calculation settings. When you’re moving sales tax, this article is useful.
- Consolidated sales tax report:
This tax is calculated based on your tax base and the sales tax collected and deducted by Amazon for the orders placed in the sales tax total level displayed in this information report.
Individual sellers are not eligible for sales tax reporting or tax accounting services. Individual sellers have access to additional reporting procedures, including sales tax collection fees. In order to use the tax calculator, it is important to develop a professional sales plan. By following the instructions below, all professional sellers have access to all three sales tax reports:
- Download the article from Amazon:
1) Log in to Seller Central.
2) Select “Reports” and click on “Tax Document Library”.
3) Under “Sales Tax Report”, click “Create Tax Report”.
4) Select “Report Type” in the pop-up window “Create Sales Tax Report” and select for reporting by month or by custom date.
5) Click “Create”. Your report will be subject to sales tax reporting.
- Use sales tax automation:
Using sales tax automation solutions helps you create reports. All your shopping on marketplaces, such as Amazon, will automatically connect to sales tax. A complete report will provide all the sales tax you collected from buyers within the state. So you don’t have to waste your time with tax maps and tables, because that will determine how much you collect in the capital, city, and other taxing jurisdictions.
You can file your sales tax return to get back the sales tax you collected after reporting the amount of sales tax collected to the state.
- B) Entering an Amazon FBA sales tax return
There are several ways to file your sales tax return:
First, go to your state’s tax authority website. Second, you can submit a sales tax return. Finally, you can pay your bill through the state payment portal.
2) Automatically through sales tax software
You can use an automated sales tax solution to file your sales tax return immediately and pay what you owe the state.
Best Amazon FBA Sales Tax Tools and Software in 2022
You will find many options when researching Amazon FBA taxes. However, you need to choose the right one that is reliable and does most of your work automatically. Here are the best tax software options for Amazon sellers that are popular in the market:
This software helps you calculate your taxes and file your tax returns. Wherever the Avalara team submits your tax return on your behalf, they also provide guidance services. By paying more money, the group will check the calculation. Their solutions include:
– Taxation and communication
– Taxes on goods and services
– Property tax
– Sales and use tax
– Value Added Tax (VAT)
- A2X Accounting
The next option on this list is A2X Accounting. This sales tax tool will help you track your Amazon transactions, even though it doesn’t directly include your taxes. It provides you with all the required information like accounting details, sales taxes and fees, etc.
- Simply VAT
If you sell to countries such as the UK, France, Germany or Spain, you must declare VAT or Value Added Tax. For companies that want to expand globally, SimplyVAT is the best option. This Amazon tax management software manages VAT compliance solutions and saves you time. If you are a new trader on a tight budget, SimplyVAT is a good investment as tax rates can vary from country to country and sometimes for products within a country.
It is one of the best options available for Amazon FBA sellers to do their tax filing. It is possible to sync your Amazon account directly with the software and automatically add taxes for selected states. Monthly fees for the basic package start at $19.
- Taxify (Sovos)
For online sellers and e-commerce businesses, Taxify is a great option. You will have access to a ready to print and ready to sign form to file your taxes effortlessly. They support integration with POS systems, accounting software, shopping carts, marketplaces and more. This tool is available in three different packages: starter, standard and premium plans ranging from $47 to $247 per month.
One of the complexities of the Amazon FBA business for many sellers is sales tax. Handling customs fees and taxes and other things can be difficult. Also, human error is high in manual calculations. Things can be made easier by using relevant tools such as Amazon FBA sales tax for tax filing.