Do You Need A Seller Permit For Amazon FBA?
In this article, you will learn:
- What Is Marketplace Facilitator Law?
- Why Were Marketplace Facilitator Laws Implemented By States?
- What Should Marketplace Sellers Know About The Market Facilitator Laws?
- Do I Need A Sales Tax Permit To Sell On Amazon Or Seller Permit For Amazon FBA?
- When Do You Typically Register For a Sales Tax Permit?
One of the critical questions marketplace sellers ask is whether they need a seller permit to sell goods/services via marketplaces like Amazon, Etsy, or eBay. Do they need a seller permit for Amazon FBA?
Well, if as a marketplace seller, you look into your sales in detail, you would understand that you should maintain the seller permit you already have instead of canceling it. You are certainly not obligated to collect and remit sales tax to most U.S. states if you are solely an Amazon FBA seller. This is because the law treats Amazon as a marketplace facilitator for third-party sales undertaken via Amazon’s global marketplaces.
As a marketplace facilitator, Amazon is obligated to calculate, collect, remit, and report sales tax on goods and services sold by merchants (or third-party sellers) alongside the ones sold by Amazon (that is the sale of goods and services that come under Amazon brands) to states that have enacted the marketplace facilitator law.
You can check which states have enacted the marketplace facilitator law on Amazon’s marketplace tax collection page. Each state has its definition, registration, and reporting requirements for a marketplace facilitator. That being said, states with marketplace facilitator laws shift the responsibility of calculating, collecting, reporting, and remitting the sales tax from FBA sellers like you to Amazon.
But does that mean you don’t need a seller permit or can cancel the seller permit you already have? Well, if you are a marketplace-only seller, many states that have enacted marketplace facilitator laws do not require you to register for a new seller permit. However, as an FBA seller, you might be required to continue filing sales tax returns with $0 taxable sales in certain states if you have a seller permit already, despite the state enacting the marketplace facilitator laws.
A few states also do not allow you to cancel the seller permit you own even if Amazon as a marketplace is collecting and remitting sales tax on your behalf. Before we discuss the situations where you might have to maintain your seller permit for Amazon FBA, let’s first understand what is marketplace facilitator law, why were market facilitator laws introduced, and what should marketplace merchants know about marketplace facilitator laws.
What Is Marketplace Facilitator Law?
Generally, a marketplace facilitator is a business that contracts with third-party or remote sellers to sell their goods or services via its platform. Each state has its definition, registration, reporting, sales tax, and nexus requirements for a marketplace facilitator.
For instance, Washington state marketplace facilitator law defines a marketplace as follows:
- A marketplace facilitator is a business that engages in the following three activities:
- Contacts with third-party sellers to sell their goods and services via its marketplace
- Transmits or communicates directly or indirectly the offer between the buyer and seller
- Directly or indirectly engages in any of the following activities about the third-party sellers’ goods:
- Setting prices
- Payment processing services
- Fulfillment or storage services
- Product listing for sale
- Branding sales as those of the marketplace facilitator
- Taking orders
- Giving customer service
- Accepting or helping with exchange or return
Until recently, all eCommerce sellers including the marketplace merchants were required to collect and remit sales tax to the states with which they had nexus. That is, it didn’t matter if you sold goods and services via your eCommerce platform like WooCommerce, Magento, or Shopify or a marketplace facilitator like Amazon, Etsy, or eBay. As long as you were selling online, you were required to collect and remit sales tax to the states with which you had nexus.
However, things changed when many states enacted marketplace facilitator laws. The marketplace facilitator regulations shifted the onus of collecting and remitting sales tax from third-party sellers to marketplaces like Amazon, Etsy, and eBay.
Why Were Marketplace Facilitator Laws Implemented By States?
Imagine thousands of online marketplace sellers collecting and remitting sales tax on the sales undertaken via marketplaces to the nexus states. This not only complicated things for the nexus states in terms of collecting sales tax revenue from such sellers but also increased the cost of compliance for them.
States were required to collect sales tax from thousands of individual marketplace sellers which was too much work. Moreover, following up with marketplace sellers who failed to remit sales tax required nexus states to invest time, money, and effort in making many defaulting marketplace sellers comply with the state sales tax regulations.
This led states to enact marketplace facilitator laws that shifted the obligation of collecting, remitting, and reporting sales tax from individual marketplace sellers to marketplaces like Amazon, Etsy, or eBay. So instead of tracking hundreds and thousands of small marketplace sellers for sales tax collection, states now have to require just the marketplaces to remit sales tax on sales undertaken on their platform both by the marketplace facilitator and the individual third-party sellers.
This not only makes the sales tax collection process simpler for the states but also reduces the cost of compliance for them. That’s because, in the case of marketplaces failing to comply with the state’s sales tax regulations, it is only the handful of marketplaces that the states have to follow up with in place of several small marketplace sellers for sales tax compliance.
What Should Marketplace Sellers Know About The Market Facilitator Laws?
One of the ways in which marketplace facilitator laws have impacted marketplace sellers is that they are no longer required to collect, remit, and report sales tax to the nexus states that enacted marketplace facilitator laws. This is because these laws shift the onus of collecting, remitting, and reporting sales tax on the marketplaces instead of the marketplace sellers.
However, from the time these laws have come into effect, many marketplace sellers are confused whether they
- need a new seller permit for selling via marketplaces in states where they have have nexus
- should maintain or cancel the seller permit they already own
One of the typical responses of many marketplace sellers to the marketplace facilitator law has been to cancel the seller’s permit they already own. The common understanding behind such a response is when marketplace facilitators are responsible for collecting and remitting sales tax to nexus states on behalf of the marketplace sellers, there is no need for such sellers to maintain the seller’s permit. Before canceling your seller’s permit, it is important to do the following.
1. Delve Deep Into Your Sales
It is important to look into the sales you undertake as an eCommerce seller.
a. Marketplace Only Sales
You may be a marketplace-only seller, say selling goods/services only on Amazon. That is, your sales take place only through a marketplace, Amazon in this case, and not any other platform such as your own website, social media, etc.
In such a case, you are not required to register for a new seller’s permit, even if you are reaching a nexus with states by selling goods/services via Amazon. This is because Amazon is a marketplace facilitator and as per market facilitator law, Amazon is responsible for collecting, remitting, and reporting sales tax on behalf of marketplace sellers like you to the nexus states.
Furthermore, you can even cancel the seller permit you already own only after going through the state sales tax laws of the nexus states and consulting a tax professional.
b. Marketplace Only Sales in Home State
If you are solely selling on a marketplace like Amazon in your home state, you may have to register for a seller permit and file sales tax returns. This is because you are physically located in your home state which may trigger sales tax reporting liability for you despite Amazon collecting and remitting sales tax on your behalf.
In such cases, you can claim a deduction for the complete marketplace-only sales and file a $0 taxable sales return with your home state.
c. Multi-Channel Sales
If you sell through marketplaces as well as your own website, social media platforms, etc, you are obligated to collect and remit sales tax for sales undertaken via platforms apart from the marketplace facilitators. That is, the onus of collecting and remitting sales tax is on marketplace facilitators only for sales done via marketplace facilitator platforms like Amazon.
However, these facilitators are not responsible for sales tax on sales you make on other platforms like your own website or social media platforms. Therefore in the case of multi-channel sales, you will have to register for a seller permit in the states where you have reached a nexus, collect sales tax from the buyers on goods sold, remit sales tax to such states, and comply with the states’ respective sales tax regulations.
2. Check The State Sales Tax Requirements
As said earlier, you may be a marketplace-only seller and still have to maintain your seller permit with certain states. This is because some states require you to file sales tax returns even if the marketplace facilitator is responsible for collecting and remitting sales tax on your behalf.
In such cases, you can simply claim a deduction for all of your marketplace-only sales, file a $0 taxable sales return with the nexus states, and meet your sales tax reporting liability.
3. Ask a Tax Professional
A tax professional will guide you on whether you should register, cancel, or maintain the seller permit considering your existing nexus with states, your possibility of reaching nexus with various states in the future, your expansion prospects in various states, etc.
Ideally, very few eCommerce sellers are solely marketplace sellers and sell via multiple channels like their own eCommerce website, and social media, together with marketplaces. Therefore, only tax professionals can guide you on whether you should cancel or maintain your seller permits.
Do I Need A Sales Tax Permit To Sell On Amazon Or Seller Permit For Amazon FBA?
As mentioned above, Amazon as a marketplace facilitator is responsible for calculating, collecting, remitting, and reporting sales tax to nexus states on your behalf for sales done via its marketplace. That is, you can cancel your seller’s remit in certain cases if you are a marketplace-only seller.
However, if you sell via other channels, such as your own website, apart from Amazon, you will be responsible for collecting and remitting sales tax to nexus states for sales done via your own website. This is because Amazon will collect and remit sales tax only for sales done via its marketplace and not the sales you make via your website.
In such a case where you are selling goods or services via multiple channels apart from Amazon, you will be required to register for a seller’s permit in states you have a nexus with and comply with the state’s sales tax regulations.
When Do You Typically Register For a Sales Tax Permit?
You are required to register for a sales tax permit when you meet the nexus criteria with a state. Accordingly, you would register for a sales tax permit when you:
- have a business in a particular state (that is your home state)
- have a physical presence in a particular state
- meet the economic nexus criteria for the state
- sell on a marketplace and have a nexus with a state that has not enacted the marketplace facilitator law