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Amazon FBA Tax Filing 2024

One of the primary reasons why Amazon as a marketplace is growing more than ever is because of its FBA model and third-party selling.

While selling through Amazon FBA makes it easy for you as a third-party seller to reach a wide customer base easily and quickly, such a selling model also brings along additional tax obligations. The key taxes that you as an FBA seller must pay include sales tax and income tax.

Given the complexity of tax regulations and the unique aspects of your business, you must be aware of the changing tax laws and regulations.

So, to help you understand how Amazon FBA Tax filing works, in this guide, we will explain to you all the basics about Amazon FBA taxes including what are Amazon FBA taxes, how to register for a sales tax permit, when Amazon FBA sellers have to collect sales tax, and how to collect tax on Amazon.

But before we go ahead, let’s first understand what is Amazon FBA model.

What Is Amazon FBA?

Fulfillment by Amazon (FBA) is a program provided by Amazon that allows third-party sellers to outsource order fulfillment to Amazon. Furthermore, it involves the related tasks of receiving inventory, storing and packing products, shipping orders, and handling returns, as well as maintaining communication with the customer, along the way.

This means that if you enroll as a third-party seller for Amazon FBA service, you simply need to ship your merchandise to one of the many Amazon fulfillment centers for storage instead of storing merchandise at your warehouse. Once customers make purchases through your seller account on Amazon, Amazon ships your inventory to the customers to fulfill the order.

What Are Amazon FBA Taxes And Amazon FBA Tax Filing?

As an FBA seller, you are required to collect and remit sales tax to the state jurisdictions where you have an economic nexus for sales tax. In addition to collecting and remitting sales tax, you also need to pay income tax to the federal government.

Let’s understand what are each of these tax obligations and how you must meet them as an FBA seller.

I. Amazon FBA Sales Tax

Sales tax in the United States is a consumption tax imposed by state and local governments on the sale of goods and certain services. Unlike value-added taxes (VAT) used in many other countries, sales tax in the U.S. is typically added at the point of sale, meaning it is collected directly from the consumer when a purchase is made.

Now, as an FBA seller, you are generally responsible for collecting and remitting sales tax on sales to customers in states where you have a sales tax nexus.

The term nexus refers to a significant connection or presence that your business has in a particular jurisdiction, such as a state.

Having said this, there are 45 states in the USA and each of these states has its own sales tax laws, rates, and regulations. This means that if you sell products or services in multiple states, you must navigate a patchwork of rules, each with its exemptions, thresholds, and definitions of taxable goods and services.

To complicate matters further, several states have even introduced marketplace facilitator laws, thereby making sales tax compliance even more difficult for marketplace sellers like you to follow.

To understand how rules concerning sales tax and marketplace facilitator laws complicate tax payment, let’s first understand what constitutes marketplace facilitators and marketplace sellers.

Marketplace facilitators are the businesses that provide infrastructure to facilitate retail sales, collect and process payments, or receive compensation from retail sales. Amazon, Etsy, Walmart, and eBay are some of the most well-known marketplace facilitators.

Marketplace sellers, on the other hand, are businesses or retailers that leverage an online marketplace to sell products to a larger audience. These sellers benefit from brand awareness, advertising, and a larger customer base through association with a marketplace facilitator.

Thus, if you sell your products using Amazon FBA, then you are a marketplace seller leveraging Amazon to sell products. Amazon is a marketplace facilitator providing you with the infrastructure to facilitate retail sales.

Now, Amazon will automatically collect sales tax if the order is destined to a state or jurisdiction with Marketplace Tax Collection laws in effect at the time of order. However, the sales tax obligation remains your responsibility for orders where tax is not automatically collected by Amazon.

Therefore, as an FBA seller, it is your responsibility to understand Amazon’s tax policies, and your own sales tax calculation and remittance obligations. This also includes registering with all required states, setting up your tax calculation settings, and remitting any tax calculated on your orders to the state.

Alan Chen, CPA at Freecashflow.io, helping eCommerce businesses with their tax and accounting

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Sales Tax And Amazon FBA Sellers (Marketplace Sellers)

To ensure that you’re compliant at every stage of the sales tax cycle as an FBA seller, the following are the steps that you need to consider for managing sales tax.

1. Determine Where You Must Collect And Remit Sales Tax

As an Amazon FBA seller, the first step that you must consider for sales tax compliance is to determine where your business is required to register, collect, and remit sales tax since you are not required to collect and remit sales tax everywhere. You must collect and remit sales tax in a state jurisdiction where you have an economic nexus.

As mentioned earlier, the term nexus refers to a significant connection or presence that your business has in a particular jurisdiction, such as a state. The concept of nexus is crucial in determining whether your business is required to collect and remit sales tax in a specific location.

Before 2018, nexus was primarily based on a physical presence in a state. This physical presence could include having a brick-and-mortar store, warehouse, office, or employees in the state. The physical presence rule was based on the Supreme Court’s decision in Quill Corp. v. North Dakota passed in 1992. The decision established the precedent that a business must have a physical presence in a state for that state to require it to collect and remit sales tax.

However, the landscape changed with the Supreme Court’s decision in South Dakota v. Wayfair, Inc. in 2018. The Court overturned the Quill decision passed in 1992 and ruled that states could impose sales tax obligations on a business if it had an economic nexus in the state, even if it lacked a physical presence.

Economic nexus is typically based on a business reaching a certain level of sales revenue or transaction volume in a state.

Thus, following the 2018 South Dakota v. Wayfair, Inc. decision, states enacted economic nexus laws. As a result, rules regarding when a business had nexus in a state varied from state to state.

So, if you engage in interstate commerce as an Amazon FBA seller, you must be aware of the specific nexus thresholds and requirements in each jurisdiction where you do business. That’s because you are responsible for determining whether you have nexus in a particular state and for complying with the sales tax laws of that state.

Factors That Determine State Nexus

State nexus for an Amazon FBA seller refers to the connection between the seller and a particular state that creates a tax obligation for the seller in that state. The concept of nexus is crucial in determining where an FBA seller is required to collect and remit sales tax. Several factors can contribute to the establishment of state nexus. These include:

  • Brick-and-mortar locations
  • Location of inventory such as fulfillment centers
  • Location of company website or data servers
  • Employee presence
  • Location of company agents or representatives
  • Remotely licensed software
  • Home office locations
  • Trade show, conference, or convention attendance
  • Affiliate relationships
  • Cookies placed on computers in the state
  • Economic activity in the state
  • Leads from in-state referrals

Note that all the above nexus triggers apply across all sales channels. Therefore, as an Amazon FBA seller, you must be aware of two particular nexus triggering business activities, as they may be more prominent for you as a marketplace seller selling goods via a marketplace. The first is storing inventory in a warehouse even if the warehouse is not owned by you and the second is economic activity. Let’s take a deeper look at these activities to understand how these can trigger sales tax.

Storing Inventory In A Warehouse

As an Amazon FBA seller, you may have inventory stored in Amazon warehouses throughout the United States. You must know that, apart from New York, storing inventory in a state is a nexus-triggering event in all states in the USA, irrespective of who owns the storage facility. Therefore, as an FBA seller, it’s important for you to closely monitor where your inventory is stored to determine in what state jurisdictions you need to collect and remit sales tax.

Economic Activity

Since the Supreme Court of the United States ruled in favor of the state in the South Dakota v. Wayfair, Inc. case in June 2018, many states have put in place economic nexus laws. Before this ruling, states could only enforce a sales tax obligation on a business that had a physical presence in a state. However, after this ruling, states can now require remote sellers to collect and remit sales tax based on economic activity alone, even if such businesses do not have any physical presence in a state.

Therefore, before the Wayfair ruling, marketplace sellers were required to only monitor the state jurisdictions where they had some sort of physical connection as that was the existing standard for establishing nexus. But under new economic nexus laws, sales and/or transaction volume can also establish nexus within jurisdictions. As of July 2019, more than 40 states have economic nexus laws. Each state has different thresholds, effective dates, and applicable sales periods, so it can be challenging for you as an FBA seller to keep the various economic nexus laws straight.

2. Understand Where You Must Register To Collect And Remit Sales Tax

Once you determine the state jurisdictions where you must collect and remit sales tax, the next step is you register in the appropriate tax jurisdiction to begin collecting and remitting sales tax. To understand when and how you can register for a sales tax permit, read our article on Do you need a seller permit for Amazon FBA.

Note that all the states and local jurisdictions in the US have different processes, forms, and requirements for registration. Furthermore, with the introduction of the marketplace laws, the requirement to register in each state can become more complicated. Therefore, as an FBA seller, you must go through the sales tax registration requirements and marketplace laws in a jurisdiction where you have an economic nexus.

3. Calculate The Correct Sales Tax Amount

Once you have registered with the state jurisdictions where you must collect and remit sales tax, you can start calculating and collecting sales tax.

There are more than 12,000 tax jurisdictions in the U.S., and each jurisdiction has different tax rates and product taxability rules. Therefore, it can be extremely challenging for you to know what tax rate to charge.

No doubt determining the correct sales tax rate is challenging, you need to get it right so that you do not over-collect causing unhappy customers, or under-collect for the tax authority.

As an Amazon FBA seller, you must know that Amazon, as a marketplace facilitator, provides built-in sales tax calculation services that help you with accurate sales tax calculation and compliance. But to avail of these services, you need to enable tax collection and set it properly in Amazon based on the products you sell and the state jurisdictions where you need to collect tax.

4. Track And Manage Exempt Sales

While calculating sales tax, you must also track exempt sales. As an Amazon FBA seller, you can be exempt from paying sales tax depending upon what goods and services you sell or where you sell your products.

For instance, many states in the USA do not charge sales tax for nonprofit or government sales. Also, products intended for resale are typically exempt from sales tax.

Thus, irrespective of the reason for an exemption from sales tax, you as an Amazon FBA seller must collect and manage an exemption certificate for each tax-exempt purchaser to validate and confirm why sales tax wasn’t collected.

To help you collect and manage exemption certificates, the Amazon Tax Exemption Program (ATEP) provides you with the option to accept exempt sales and have Amazon manage the required documentation.

As an FBA seller, you need to keep all the exempt sale documentation up-to-date. In case you fail to generate documents during an audit, you may be subject to fines and penalties.

5. Remit Sales Tax To The Tax Authority

After you have collected the appropriate amount of sales tax from the state jurisdictions where you are obligated to collect sales tax, you must then remit the collected tax amount to the tax authorities.

Each state tax authority has different regulations around sales tax remittance, including when sales tax returns are due, how the returns should be remitted (whether paper or electronic returns), and the frequency of returns that must be remitted to the taxing jurisdiction. Therefore, you must either consult a tax advisor or use an automated tax solution to understand where and how you need to do Amazon FBA Tax filing.

Also, if you sell your products on other marketplaces apart from Amazon FBA, then you must gather and compile sales tax data from all sales channels. That’s because to do accurate Amazon FBA Tax filing sales tax returns and to avoid double remittance, your returns must include all sales and revenue, regardless of channel.

Sales Tax And Marketplace Facilitator Laws

As mentioned earlier, what makes Amazon FBA tax filing challenging for the FBA sellers is the marketplace facilitator laws that have been put in place recently.

Marketplace facilitator laws impose an obligation on marketplace facilitators like Amazon to collect and remit sales tax on behalf of sellers.

Earlier we discussed the steps that FBA sellers must consider when tracking and managing sales tax effectively. In this section, we will discuss how some of the burden of determining and managing sales tax has been shifted to marketplace facilitators like Amazon that facilitate retail sales with the introduction of these laws.

To understand how these laws have impacted Amazon, let’s first understand what are the marketplace facilitator laws that have been put into place.

In 2017, states realized that marketplace facilitators were not charging their customers sales tax on third-party, or marketplace, sales. They were only charging tax on the sale of their products. This meant that a huge portion of sales were left untaxed. For instance, Amazon was charging customers tax on the sale of its items, leaving third-party sales or sales made through Amazon’s marketplace untaxed. Since more than half of the transactions occurred through Amazon’s marketplace, this meant that a huge amount of sales occurring on Amazon remained untaxed. To avoid this, many marketplace facilitator laws began to appear in 2017.

In response to these laws, many marketplace facilitators claimed that they were not responsible for collecting sales tax since they were not the actual sellers, they simply provided a platform that facilitated the sales. As per sales tax laws, it was the responsibility of the sellers to collect sales tax from customers. Despite such claims, states did not want to miss out on the tax revenue from the marketplace sales. As a result, more than 30 states adopted marketplace facilitator laws to shift the collection and remittance obligation to the facilitator.

Now just like sales tax laws vary from state to state, these marketplace facilitator laws also vary by state in their application.

For instance, in Alabama, any marketplace facilitator with marketplace sales over $250,000 is required to collect and remit sales tax on sales made by or on behalf of its third-party sellers. This is not as simple as it sounds. To add to the complexity, Alabama sales tax also has non-collecting seller use tax reporting requirements. Accordingly, a marketplace facilitator that exceeds the threshold of $250,000 in sales may opt out of collecting sales tax provided such a facilitator complies with the state’s noncollecting seller use tax reporting requirements.

Likewise, in New Jersey Sales Tax Laws, a marketplace facilitator selling into the state is required to collect and remit sales tax on sales made through any physical or electronic marketplace owned, operated, or controlled by a marketplace facilitator, even if the marketplace seller is registered with New Jersey for the collection and remittance of sales tax. However, in New Jersey, a marketplace facilitator and marketplace seller may enter into an agreement with each other regarding the collection and remittance of sales tax. Unlike Alabama, there is no non-collecting seller use tax reporting requirement in New Jersey, so the marketplace facilitator does not have the option to opt out of collection.

Sales Tax And Amazon FBA Tax Filing (Marketplace Facilitators)

As an FBA seller (marketplace seller), you must remember that marketplace facilitator laws are not applicable across all states. Furthermore, the way Amazon handles the marketplace facilitator laws is completely different from how other marketplaces like Etsy or eBay handle such laws. This means that apart from Amazon FBA if you sell your products on other marketplaces, you may have different obligations for the various jurisdictions and marketplaces in which you sell.

Given that many states have adopted marketplace facilitator laws, let’s understand how this will impact you as an Amazon FBA seller in collecting and managing sales tax.

1. Determine Where You Must Collect And Remit Sales Tax

Though many states have adopted marketplace facilitator laws, this should not stop you from determining what constitutes nexus and where you have a sales tax obligation. As an FBA seller, you should continue to monitor your sales and evaluate in what state jurisdiction you have a sales tax obligation based on the nexus-triggering activities mentioned in the section above.

With the introduction of the marketplace facilitator laws, one major confusion that you may have as an Amazon FBA seller is regarding the economic nexus laws and their impact on the marketplace facilitator laws.

Most economic nexus laws require sellers to assess their gross revenue or gross sales into a state, regardless of the sales channel. This means that as a seller, if your total sales surpass an economic nexus threshold in a state, regardless of how those sales were made, then you have a sales tax obligation in such a state. As a result, you must take the next steps.

However, if you only sell via marketplaces and surpass an economic threshold in a state with an economic nexus law, it may impact your registration requirements, even if the marketplace (Amazon in our case) collects and remits on your behalf in some cases. We will see how this happens in the next step.

Thus, like sales tax compliance, each state is unique with its marketplace facilitator laws. As a result, you must review these laws on a state-by-state basis as an FBA seller.

2. Understand Where You Must Register To Collect And Remit Sales Tax

As mentioned earlier, the introduction of marketplace facilitator laws may impact where you must register, especially if your nexus obligation is established based on economic activity alone in the state.

Typically, if you have a nexus obligation in a tax jurisdiction, you need to register in such a state, regardless of whether the state has a marketplace facilitator law. However, things get complicated when a state has both an economic nexus and marketplace facilitator laws.

Some states don’t require you to register if (i) you surpass an economic threshold to establish nexus, (ii) only sell through a marketplace like Amazon into the state, and (iii) have no physical presence in the state. Thus, most states vary registration requirements based on how you as a marketplace seller make sales in each state.

Accordingly, as an FBA seller, you must know whether a state where you sell your products through a marketplace only has both economic nexus and marketplace facilitator laws and what are the registration requirements in each of those states.

3. Calculate The Correct Sales Tax Amount

Just like the registration requirements in a state, the introduction of marketplace facilitator laws will likely impact your sales tax calculations.

If you are selling in a state via a marketplace only and such a state also has marketplace facilitator laws, in such a case, the marketplace facilitator will either collect sales tax for you or ask you to collect sales tax in such states.

In either case, your marketplace facilitator should communicate with you regarding how it handles marketplace facilitator tax collection, including who will be responsible for determining the correct tax rate in case you as a seller are audited. Thus, as a seller, you must contact your marketplace for any queries.

4. Track And Manage Exempt Sales

Unlike determining nexus and calculating sales tax, the introduction of marketplace facilitator laws does not have an impact on exempt sales. If as a seller you are making an exempt sale via a marketplace in a state that has marketplace facilitator laws, you are still required to collect a valid exemption certificate to verify why tax was not collected.

You must always consult your marketplace facilitator to determine who is ultimately responsible for tracking and managing exemption certificates in case you as a seller are audited.

5. Remit Sales Tax To The Tax Authority

The introduction of marketplace facilitator laws will likely impact your sales tax remittance. If you’re selling via a marketplace in a state with a marketplace facilitator law, your marketplace facilitator will likely begin to remit the sales tax on your items sold through their marketplace. If a marketplace is collecting and remitting on your behalf and you are not aware or planning to account for this, you risk double filing with the state. Since the marketplace facilitator collected sales tax from the customer, those remittance funds will likely be coming out of your pocket and profits.

When Do Amazon FBA Sellers Have To Collect Sales Tax?

The obligation for Amazon FBA (Fulfillment by Amazon) sellers to collect sales tax depends on several factors, including the presence of nexus, the specific laws of each state, and the seller’s sales volume. The following are the factors that trigger you as an FBA seller to collect sales tax.

1. Sales Tax Nexus

The first factor that triggers sales tax collection for you as an FBA seller is having a sales tax nexus. As mentioned earlier, the sales tax nexus is the connection between you as an FBA seller and a state that creates a tax obligation. A nexus can be established through physical presence, economic activity (economic nexus), or other factors.

The term nexus refers to a significant connection or presence that your business has in a particular jurisdiction, such as a state. The concept of nexus is crucial in determining whether your business is required to collect and remit sales tax in a specific location.

Traditional physical presence rule requires a seller to have a brick-and-mortar store, office, or warehouse in a state to have a nexus in a state jurisdiction. Accordingly, for you as an FBA seller, having inventory stored in Amazon fulfillment centers is considered a physical presence, thus creating a nexus in those states.

Besides the physical presence rule, many states have enacted economic nexus laws that consider your economic activity as an FBA seller, such as sales volume or the number of transactions, in the state to determine your sales tax obligation in such a state. Accordingly, if you as a seller exceed the specified thresholds, you are required to collect and remit sales tax, even if you don’t have a physical presence there.

Thus, according to both physical presence and economic nexus rules, if you as an FBA seller have a nexus in a state, you are generally required to collect and remit sales tax on sales made to customers in that state. Besides brick-and-mortar locations and economic activity considerations, the other factors that determine whether you have a state nexus or not include:

  • Location of inventory such as fulfillment centers
  • Location of company website or data servers
  • Employee presence
  • Location of company agents or representatives
  • Remotely licensed software
  • Home office locations
  • Trade show, conference, or convention attendance
  • Affiliate relationships
  • Cookies placed on computers in the state
  • Leads from in-state referrals

2. Taxable Products and Services

The taxability of products and services is another important factor that triggers sales tax collection. As an FBA seller, you should be aware of the taxability of the specific products or services in each state. This is because some items may be exempt. Therefore, understanding which products are subject to sales tax is crucial for accurate collection.

Now, some common categories of taxable products and services are often subject to sales tax. Tangible Personal Property (TPP) is one such category. Most states impose sales tax on the sale of tangible personal property.

Tangible personal property, in the context of sales tax, refers to physical items that can be seen, touched, and moved. It is a legal term used in tax law to distinguish between physical goods that are subject to sales tax and other types of property or services that may not be taxable. TPP includes physical goods such as clothing, electronics, furniture, books, and other tangible items.

Apart from TPP, another common category of taxable products and services is digital goods and services. Many states tax even the sale of digital goods and services, including digital downloads (e.g., music, movies, software), streaming services, e-books, and other digital products. Digital goods refer to electronically delivered products or services that are intangible and not physical. As technology has advanced, the sale and distribution of digital goods have become increasingly common. Accordingly, every state has its own rules for the taxation of digital goods and services. It’s important for you as an FBA seller to understand these rules in the states where you operate.

Then, some states may exempt clothing from sales tax, while others may tax certain types of clothing items or accessories. Examples of states with no sales tax on clothing include Delaware, Montana, Oregon, and New Hampshire. Then, partial exemption on clothing means that certain types of clothing items or specific price thresholds may be exempt, while others are taxable. For example, necessities like shirts, pants, and shoes may be exempt, but luxury items or accessories might be taxable.

As we can see, exemptions and taxability can vary significantly between states. Thus, as an FBA seller, you should consult with tax professionals or state taxing authorities to ensure you understand the specific tax rules that apply to your products and services in the jurisdictions where you operate. In addition, you must monitor changes in tax laws regularly to stay compliant.

3. Marketplace Facilitator Laws

In addition to state nexus and product taxability, Marketplace Facilitator laws in a state also trigger sales tax collection for you as an Amazon FBA seller.

Marketplace Facilitator laws are a set of regulations that shift the responsibility for collecting and remitting sales tax from individual sellers to the online marketplaces where the sales occur. These laws are designed to simplify the sales tax collection process, especially for transactions made through online platforms.

Many states in the U.S. have implemented marketplace facilitator laws, but the landscape is subject to change. Thus, as an FBA seller, you must regularly check for updates from state taxing authorities and seek professional advice to ensure compliance with the latest regulations.

4. Registration Requirements

Another factor that determines whether you must collect sales tax as an FBA seller is the sales tax registration requirements of a state.

Sales tax registration requirements, considering both economic nexus rules and marketplace facilitator laws, involve understanding the impact of each and determining the specific obligations in the jurisdictions where you operate.

Economic nexus rules establish a sales tax obligation based on your economic activity (sales or transaction volume) in a state as an FBA seller, regardless of your physical presence in such a state. Many states have set specific thresholds, such as a certain amount of sales revenue or a certain number of transactions within the state for sellers to have a nexus in such states.

If as an FBA seller, you exceed the economic nexus thresholds in a state, you are generally required to register for a sales tax permit in that state. Registration is typically done through the state’s taxing authority.

However, the Marketplace Facilitator laws shift the responsibility for collecting and remitting sales tax from individual sellers to the online marketplace where the sales occur. Thus, if an online marketplace is a facilitator and collects sales tax on behalf of third-party sellers, individual sellers may not need to register for sales tax separately in states covered by the facilitator program. The marketplace handles the sales tax collection and remittance.

In some cases, economic nexus rules and marketplace facilitator laws can overlap. For example, as an FBA seller, you may have economic nexus in a state but also sell through a marketplace that is a facilitator in that state. In such a scenario, you must evaluate your sales activities to determine whether they trigger economic nexus, whether the marketplace is a facilitator, and how these factors interact.

The registration process can vary by state. For instance, some states allow you to register for sales tax through a single registration for both economic nexus and marketplace facilitator obligations. While others may have separate processes.

For instance, in California, the registration process for economic nexus and marketplace facilitator obligations may be separate. A person, including a marketplace facilitator or a marketplace seller who is actively engaged in selling tangible personal property in California, is required to register with the California Department of Tax and Fee Administration (CDTFA) for a seller’s permit. Additionally, a person who is engaged in business in California under Revenue and Taxation Code section 6203 and who has a sufficient physical presence in California or economic nexus with California is required to register with CDTFA for a Certificate of Registration – Use Tax, collect use tax from their purchasers, and file regular sales and use tax returns.

How To Set Up Amazon Sales Tax Collection?

To set up sales tax collection in Amazon and start collecting sales tax, you need to follow the steps below.

1. First, go to Seller Central and login to your account.

2. Then, click ‘Settings’. Under ‘Settings’, click ‘Tax Settings’.

3. On the ‘Tax Settings’ page, you will see three options: View Tax Calculation Methodology, View-Master Product Tax Codes and Rules, and View/Edit your Tax Collection and Shipping & Handling and Gift Wrap Tax Obligations Settings.

4. The ‘View/Edit your Tax Collection and Shipping & Handling and Gift Wrap Tax Obligations Settings’ section is the most important section of Tax Settings. This is where you will tell Amazon when to collect sales tax. Once you click this section, you will see the following four options: Choose Product Tax Codes, Specify your Tax Collection Obligations (States, Counties, Cities, Districts), Specify a Custom Rate per State (Optional), and Choose Shipping and handling and Gift Wrap Tax Settings.

a. Choose Product Tax Codes

In this section, you can do either of the following two things: (i) You can choose a default Product Tax Code (PTC) for all of your items by checking the box that says ‘Use default Product Tax Code’ or (ii) you can assign a PTC for individual items. In case you want to set PTC for individual items, you can do so either through your listings feed or the ‘Add a Product feature’ in Seller Central. In case you fail to add either default PTC or PTC for individual items, you will not be able to collect sales tax.

b. Specify Tax Collection Obligations (States, Counties, Cities, Districts)

In Amazon, you have an option to collect sales tax both at the state level and the local level. You can either collect no sales tax, collect for both the state and all of the local jurisdictions, or collect only part of the sales tax required. You need to decide what you need to do as a seller. To avail of this option of specifying tax collection obligations at the state and the local level, you need a valid state registration number. Without that number, this option won’t work.

c. Specify a Custom Rate per State (Optional)

This is optional. This option allows you to collect sales tax at a flat tax rate for a state instead of using using’s Amazon’s tax settings for a state. You can choose to avail of this option if you use a custom rate over Amazon’s predetermined rates for state and local jurisdictions.

d. Choose Shipping & Handling and Gift Wrap Tax Settings

The shipping & handling and gift wrap tax settings in Amazon allow you to decide if you want to tax shipping, handling, and gift wrap charges. Note that the gift wrap portion of this is related to the actual service of gift-wrapping, not the paper that you wrap in item in.

In case you choose to tax shipping, handling, or gift wrap, then Amazon will charge sales tax at the same rate the item that’s being shipped or handled is being taxed. For example, if the sales tax rate for the item you’re selling is 8.25%, then the sales tax rate for shipping on that item will also be 8.25%. If the item is not taxable, then the shipping, handling, or gift wrap will not be taxed.

II. Amazon FBA Income Tax

Income tax is a progressive tax system in the United States. Thus, as an Amazon FBA seller, the income tax is a significant aspect of your financial responsibilities. You must report your business income to the Internal Revenue Service (IRS) and potentially to state tax authorities.

As an FBA seller, you are required to report your total business income, which includes sales on the Amazon platform, on your income tax returns. This income is generally reported on Schedule C of the individual income tax return (Form 1040).

What Is IRS Form 1040?

IRS Form 1040 is the standard U.S. federal income tax form that individual taxpayers use to report their annual income and calculate their federal income tax liability. This form is used to report various types of income, including wages, salaries, self-employment income, interest, dividends, capital gains, rental income, retirement income, and more.

Now, if you sell on Amazon FBA, you must file Form 1040 to report your business income as self-employed. In addition to this, you must also file Schedule C along with Form 1040 to report your business expenses. The deadline for filing Form 1040 is typically April 15th, though it can be extended to a later date if requested.

As per the IRS, a self-employed individual carries on a trade or business as a sole proprietor or an independent contractor. Typically, a self-employed must pay income tax and self-employment tax to the IRS on the due date.

Income tax is the tax that you are required to pay as a self-employed if your net earnings from self-employment were $400 or more in the previous year. Even if your net earnings from self-employment were less than $400, you are still required to file an income tax return with the IRS, provided you meet the other filing requirements mentioned in the instructions to file Form 1040.

Apart from income tax, the other type of federal tax that you are typically required to pay as a self-employed individual is the self-employment tax (SE tax). The SE tax is a Social Security and Medicare tax that self-employed individuals, working for themselves, have to pay to the IRS. This is much like the social security and Medicare taxes that employers withhold from the pay of most wage earners. Thus, self-employed individuals must file Schedule SE along with Form 1040 or Form 1040-SR to pay their SE taxes.

In addition to the above tax forms, there is another form that you should know about as an FBA seller and that is Form 1099-K.

What Is Form 1099-K?

Well, sellers selling goods or services through an online marketplace or using any payment apps or payment cards to receive payments may receive Form 1099-K from such an online marketplace, payment app, or payment card provider respectively.

Form 1099-K is a Payment Card and third-party network transaction information return. Such a return is used by payment card companies and payment apps or online marketplaces (also called third-party payment networks) to report to the IRS the gross amount of reportable transactions undertaken by them for the calendar year.

Thus, it’s crucial for sellers selling goods or services on online marketplaces or the payees receiving payments through payment apps or payment cards to complete Form 1099-K they received from the respective entity for tax reporting purposes.

Accordingly, Amazon is required to file Form 1099-K to the IRS to report the gross reportable transactions of the Amazon sellers to whom they make payments. Provided the Amazon sellers have gross reportable transactions of more than $600, irrespective of the number of transactions.

This means, as an FBA seller, if you process a minimum threshold amount in gross payments during the calendar year on Amazon, then Amazon will send you Form 1099-K as it is required to report your sales to the IRS using this form.

When Does Amazon Give You A 1099-K?

Amazon will send you Form 1099-K based on the information you provide on Form W-9 as an FBA seller.

The IRS requires persons making payments during the calendar year as a business or self-employed to report an information return to the IRS. Since Amazon makes payments during a calendar year to several sellers like you on its platform, it is required to report an information return to the IRS. To file an information return with the IRS, Amazon would need the correct taxpayer details from you, for which it will request you to complete your W9 form.

Accordingly, W9 is a form that persons making payments in the course of their trade or business during the calendar year send to recipients of those payments to collect tax information of such recipients.

Likewise, Amazon W9 is a form that is requested by Amazon to all the US-based sellers registering on its platform to collect their tax information such as Tax Identification Number (TIN). Such tax information is then used by Amazon to report payments made to the sellers for selling their products on Amazon in form 1099-NEC to the IRS.

Remember, you need to fill out the W9 form only if you are a US-based seller registering on Amazon. Also, make sure that your tax details furnished in W9 are correct and up to date. This is because Amazon would use the same details such as your name, business address, etc to report your payments to the IRS in form 1099-NEC. Amazon will then send a copy of the form 1099-NEC to you once it files return to the IRS.

Thus, when you sign up for your Amazon Seller Central account, Amazon asks you to fill out a W-9 form. Furthermore, it requires you to enter either your employer identification number (EIN) or your social security number (SSN) as your tax identification number (TIN).

Based on the information you provide on your W-9, Amazon reports your account’s revenue each year to the IRS.

From 2023, you will receive Form 1099-K from Amazon provided:

  • Do you sell in the USA or are you an American citizen who sells abroad, and
  • You have accrued at least $600 in revenue that year

For the calendar years before 2023, Amazon issued a Form1099-K to you if you had:

  • More than $20,000 in unadjusted gross sales, and
  • More than 200 transactions

Thus, if you did not meet both of the above thresholds, you would not have received a Form 1099-K for the tax year from Amazon.

If you are an FBA seller outside the U.S., then you need to complete Form W-8BEN and provide it to Amazon to be exempt from U.S. tax reporting requirements. An IRS Form W-8BEN is a Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting purposes. By completing a Form W-8BEN, you confirm to Amazon that you are not a US Taxpayer and you will avoid having taxes withheld from your interest payments.

As you can see from the above, Form 1099-K will let you know exactly how much revenue you made that year as an FBA seller. Furthermore, it will also tell the IRS what amount of money they might expect you to pay taxes on.

Where Can I Find Form 1099-K In Amazon Seller?

If you are a seller selling actively on Amazon and you meet the requirements for Form 1099-K, then you may receive the form from Amazon. To view Form 1099-K, follow the steps below:

  • Log in to your Amazon Seller Central account through https://sellercentral.amazon.com
  • Then, click on ‘Reports’.
  • Under ‘Reports’, click ‘Tax Document Library’.
  • In the ‘Tax Document Library’, select the appropriate year and then choose Form 1099-K.

When Will I Receive My Form 1099-K?

Amazon will send your Form 1099-K to you on or before January 31, 2023, via electronic or physical mail delivery, depending on your selected preference. By default, the form will be postmarked on or before January 31, 2023, and will be mailed to the address provided by you in the tax interview.

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