How Do I Avoid Tax On Amazon?
In this article, you will learn:
- What Is The Amazon Tax Exemption Program (ATEP)?
- How To Set Up Your Amazon Business Account Tax-Exempt Status?
- Why Should Tax Exempt Organizations Enroll In ATEP?
- How Should ATEP Businesses Generate Transaction-Specific Exemption Certificates?
- How Should Businesses Check Their ATEP Enrollment Status?
- How Can Businesses Check Manage Their Tax Exemptions Under ATEP?
- Why Is There Tax In Your Tax-Exempt Purchase Order?
- Why Do Third-Party Sellers Enroll in ATEP?
- How Can Third-Party Sellers Enroll In ATEP?
You can avoid or do away with paying sales tax on certain eligible items you purchase from Amazon if you are a qualified individual/business organization enrolled under the Amazon Tax Exemption Program (ATEP).
Yes, Amazon allows certain qualified individuals/businesses to make tax-exempt purchases on eligible orders, meaning that such organizations pay zero or no sales tax on specific items they purchase from Amazon.
However, as mentioned, you must first be qualified to sign up for Amazon ATEP and avail of tax-exempt status from Amazon to make purchases with zero sales tax.
Amazon requires you to provide the necessary information and certain documents based on the type of exemption your business is qualified or registered for.
If your information and documents are valid, Amazon grants you the type of exemption you are qualified for in the states where you have registered for ATEP. This allows you to make purchases on Amazon and pay no sales tax on the eligible items.
Don’t know what is ATEP? Is your business organization tax-exempt? Is your business qualified to enroll for ATEP and make tax-exempt purchases on Amazon?
In this article, we will answer all these questions to help you know how to avoid tax on Amazon. Let’s first understand what ATEP is.
What Is The Amazon Tax Exemption Program (ATEP)?
The Amazon Tax Exemption Program (ATEP) is a program that allows individuals and businesses to make tax-exempt purchases, provided such items are sold by Amazon, its affiliates, and third-party sellers who have enrolled in ATEP. That is, you as an individual/business will pay zero sales tax on eligible items if you as a qualified purchaser are enrolled under ATEP and have bought items from Amazon, its affiliates, and Amazon third-party sellers participating in ATEP.
We’ll discuss later what benefits third-party sellers get by participating in ATEP and selling goods to tax-exempt businesses. For now, let’s have a look at how organizations making purchases for their business can make tax-exempt purchases and pay no sales tax.
Let’s consider an example to understand the type of exemptions your business qualifies for, things you will require to register for ATEP, how you as a business can enroll for ATEP, and benefits you can avail under ATEP.
Let’s say you run an educational institution for which you need school supplies in bulk. Since educational institutions qualify for sales tax exemption, you can set up an Amazon business account and apply for ATEP in all the states you hold exemptions for.
Amazon will require you to submit requisite information and your tax exemption certificates or documentation via your Amazon business account. If all the information and documentation provided are valid subject to ATEP terms and conditions, you will be enrolled under ATEP for those states/jurisdictions. To get more clarity on how to make tax-exempt purchases on Amazon, let’s take a look at how to set up your tax-exempt status.
How To Set Up Your Amazon Business Account Tax-Exempt Status?
Before you set up your Amazon tax-exempt status, keeping a few things handy is important.
Things You Need For Amazon Tax-Exempt Status
1. States In Which You Hold Or Want To Update Your Tax Exemptions
The first thing Amazon will require from you in ATEP enrollment is to mark the states for which you hold exemptions. You need to select the states where you hold a sales tax-exempt status and have the requisite sales tax exemption certificates or documents.
For instance, if you hold a sales-tax exemption status in Massachusetts, you must select the state for Amazon to allow you to make tax-exempt purchases in this state.
2. Type Of Exemptions Your Organization Is Qualified Or Registered For
Many organizations can make sales-tax-exempt purchases under various state sales tax laws.
For instance, you are a business purchasing items for resale in California. As per California State sales tax laws, a business purchasing items for resale is exempt from paying sales tax on such items.
Thus, you can make sales tax-exempt purchases in California by providing a resale certificate to the seller (Amazon, its affiliate, or an Amazon third-party seller in this case).
Accordingly, you must choose the type of exemption your business organization is registered or qualified for (resale for instance) in the selected states. The various types of exemptions your business can be qualified or registered for are as follows:
- Charitable Organization
- United Nations/Diplomat
- Federal Government
- Industrial Production/Manufacturing
- Native American
- Nonprofit Religious Organization
- Agricultural Production
- Direct Pay Permit
- Educational Institution
- Hospital (Nonprofit or State)
- Nonprofit Organization
- State/Local Government
3. Tax Exemption Number Or Forms
Amazon will also ask you to upload or submit tax exemption forms or documentation. These will vary depending upon the jurisdictions for which you hold or want to provide tax exemption documentation. Check the list of Certificates Required By State For Exemption to know what certificates you need to provide Amazon to set up your tax-exempt status.
4. Amazon Business Account
It is highly recommended to have an Amazon business account before setting up your Amazon account for tax-exempt status. It is not a mandatory requirement, however, it gives you access to job-related products, quantity discounts, and services when you place orders for your business organization.
How To Enroll For Tax-Exempt Status Under ATEP As A Business?
Amazon Business has a bunch of tools to help tax-exempt organizations enroll themselves under ATEP. The following are the steps you must follow to register under ATEP as a business/organization that wants to make tax-exempt purchases.
1. Login To Your Amazon Business Account
Log in to your Amazon business account and click on the ‘Account for [Your Business Name] drop-down menu to the top right.
2. Select ‘Business Settings’
In the drop-down menu click on ‘Business Settings’.
3. Scroll Down To ‘Tax Exemption And Licenses’
Head down to ‘Tax Exemption and Licenses’ and then select ‘Tax Exemption’.
4. Select ‘Add Exemptions’
Now click on ‘Add Exemptions’ and choose one of the following two options:
a. I Want To Upload My Tax Exemption Forms
Once you choose this option, you will simply have to upload your tax exemption documents. Your documents must include a signature, date, and description of items. Double-check and be very sure that you are submitting valid tax exemption certificates as per the state sales tax laws of the respective states for which you want to register for ATEP. Amazon will check your documents and verify your exemption within 24 hours.
b. I’ll Enter My Tax Exemption Information
If you choose this option, the Amazon Tax Exemption Wizard tool will guide you through the enrollment process which is as follows.
(i) Select The State In Which You Hold Or Want To Update Your Tax Exemption
Simply select the state/states for which you hold or want to update tax exemptions.
(ii) Select The State Where You Have A Local Exemption
Territories like Colorado Springs, Fort Collins, and Centennial will require additional tax-exemption documentation. If these apply to you, select ‘Yes, I have Additional Documentation’. However, if these do not apply to you, simply select ‘No, Does Not Apply to Me’ and continue.
(iii) Select The Type of Tax Exemption Your Organization is Qualified Or Registered For
Now select the type of tax exemption your business is qualified or registered for.
(iv) List Of Certificates You Need To Add/Modify
Once you select the type of tax exemptions and hit ‘Save and Continue’, Amazon will display the list of certificates you will have to add.
(v) Fill In Your Business Address
In this section, you simply need to fill in your business address details including the organization name, description, address, zip code, your name and title.
(vi) Provide Additional Information
Amazon will request you to provide additional details such as your state registration number, state resale number (if applicable), etc. You need to fill in the requisite information to generate exemption forms.
(vii) Review the Information Provided
(viii) Sign Your Exemption Certificate
Lastly, you will have to put your signature in the space provided to generate your exemption certificate.
If all the details provided are valid, your exemption certificate will be generated within 15 minutes.
Once you have enrolled under the ATEP, you can generate transaction-specific exemption certificates if you have enrolled in ATEP via Amazon Wizard. The transaction-specific certificates list the actual products ordered in the transaction undertaken.
If you are a tax-exempt business (such as an educational institution, a reseller, manufacturer, etc) making purchases via Amazon third-party sellers, Amazon will provide the exemption certificate to the seller on your behalf.
Why Should Tax Exempt Organizations Enroll In ATEP?
Enrolling in ATEP simplifies making tax-exempt purchases for businesses that qualify for this program. Following are the ways how ATEP simplifies tax-exempt purchasing for businesses that make purchases for their organization.
1. Simple Enrollment Process
Enrolling in ATEP is super easy. You can upload your tax-exemption documents using the uploader tool. Or you can add your tax-exemption information with the help of Amazon Wizard which self-guides you in the enrollment process.
2. Gain Tax Exemption Within No Time
Get your tax-exempt status within 15 minutes. However, it may take 24 hours in the case of certain business organizations.
3. No Need For Manual Processing Of Tax Refunds
You don’t need to get in touch with customer support to claim sales tax refunds on your tax-exempt purchases. As an approved ATEP business account, purchasers from your business organization can make tax-exempt purchases from Amazon, its affiliates, and Amazon third-party sellers participating in ATEP.
4. Direct Purchasers Towards Tax-Exempt Sellers
You can formulate buying policies and restrict the purchasers from your organization to make purchases only from the sellers participating in ATEP.
5. Manage Your Tax-Exempt Purchases Easily
You can even choose the groups of users who can make tax-exempt purchases from your organization via your ATEP-registered Amazon business account.
How Should ATEP Businesses Generate Transaction-Specific Exemption Certificates?
Remember, you as a tax-exempt purchaser will be able to generate transaction-specific exemption certificates only if you have enrolled in ATEP via the Amazon Wizard tool and not by uploading documents.
Amazon can generate transaction-specific sales tax exemption certificates for you which mention the list of items purchased in a particular order. You need to follow the following steps to generate transaction-specific exemption certificates for your purchases.
- Log in to your Amazon business account, head to ‘Other Programs’, and open the ‘Amazon Tax Exemption Program’ page.
- Choose ‘Order Exemption Library’.
- Choose one out of the following: Order ID, Digital Order ID, Distributor Return ID, or Date Range.
- Enter the requisite ID.
- Choose ‘Request Report.
How Should Businesses Check Their ATEP Enrollment Status?
Amazon will inform you if your exemption is about to expire. Your Amazon account administrator will receive such an intimation 30 days before expiry, 10 days before expiry, and on the day of expiry of your exemption certificates.
Also, Amazon provides you with the following details for each of your exemptions:
- Status of Your Exemption Certificate: If your certificate is active or expired.
- Type: mentions the type of exemption you are registered for
- Jurisdiction: specifies the states or jurisdictions where you have enrolled for ATEP. You will have to pay sales tax for orders that ship to territories where you are not enrolled for ATEP.
- Seller: Amazon and its affiliates or a specific Amazon company. Please note that the exemptions apply only to purchases made from Amazon, its affiliates, or items sold or shipped by an Amazon company.
- Effective: The date from which your exemption certificate is effective
- Expiration: The date on which your exemption certificate expires. This will vary based on the validity period specified by the state or the date mentioned on the exemption certificate. You will be asked to add a new exemption certificate in case of expiry of such a certificate.
- Groups Assigned: The groups in your organization to whom you have assigned these exemptions.
How Can Businesses Check Manage Their Tax Exemptions Under ATEP?
As a tax-exempt business enrolled in ATEP, you can manage your tax exemptions from your Amazon business account. That is, you can add new exemptions, edit existing exemptions, and give or take access to exemptions from the groups in your organization. Follow the following steps to manage your tax exemptions:
- Log into your Amazon business account and click on the Account For “Your Organization Name” drop-down menu at the top right.
- Select ‘Business Settings’
- Head down to ‘Tax Exemption and Licenses’ and then choose ‘Tax Exemption’.
- Choose any of the following options, based on what you want to do:
- Add Tax Exemptions – for adding new exemptions
- Actions – for modifying existing exemptions
- Manage Permissions – for selecting which groups in your organization can use tax exemptions
Why Is There Tax In Your Tax-Exempt Purchase Order?
If you as a tax-exempt purchaser can see sales tax being applied to your order, chances are that your tax exemption has expired or you haven’t applied for ATEP. Therefore, it is necessary to see for reasons why sales tax is applied to your tax-exempt purchase and take the requisite steps to avoid the hassle of asking Amazon for a sales tax refund.
The following are the reasons why you can see sales tax on your purchase order:
- You haven’t enrolled as a tax-exempt business in ATEP.
- You purchased items that will be shipped to a jurisdiction where you do not hold an exemption.
- You bought an item where your tax exemption does not apply fully.
- You haven’t configured the purchaser’s Group settings to use the tax exemptions.
- Your sales tax exemptions have expired.
Why Do Third-Party Sellers Enroll in ATEP?
In the above sections, we discussed why tax-exempt buyers must enroll in ATEP to make tax-exempt purchases easily. In this section, we will discuss why Amazon third-party sellers keen on selling to tax-exempt business organizations must enroll in ATEP. Much like buyers enrolled in ATEP for making tax-exempt purchases, the ATEP makes selling easier to such buyers for the third-party sellers participating in ATEP. The following is how enrolling in ATEP makes selling easier to tax-exempt buyers.
1. Automatically Applies The Applicable Sales Tax Exemptions
ATEP automates the tax-exemption process for you as a seller as it automatically applies the applicable sales tax exemptions at the time of sale. Accordingly, you as a third-party seller do not have to worry about processing the sales tax refunds to tax-exempt buyers after the sale has been made.
2. Auto-populates Seller-Buyer Information in Exemption Certificates
When tax-exempt buyers make purchases from ATEP-enrolled sellers, ATEP automatically populates both the seller entity name and the buyer tax-exemption information in the exemption certificate at the time of sale. Further, it also processes the sale without collecting sales tax from the tax-exempt buyers.
3. Stores Exemption Certificates For Future Reference
ATEP also stores tax-exemption certificates for tax-exempt sales in case you need them for audit purposes in the future.
How Can Third-Party Sellers Enroll In ATEP?
Enrolling in ATEP as a third-party seller is easy. The following are the steps you must follow to enroll as a seller in ATEP.
1. Log Into Your Amazon Seller Account
Use your username and password details to log into your Amazon seller account.
2. Click On ‘Tax Settings’ In The Settings Dropdown Menu
Open the ‘Settings’ drop-down menu at the top right and select ‘Tax Settings’.
3. Click On ‘View/Edit Your Tax Collection Obligations And Shipping & Handling And Gift Wrap Tax Settings’
Once you open the ‘Tax Settings’ page, locate the ‘View/Edit Your Tax Collection Obligations and Shipping & Handling and Gift Wrap Tax Settings’ link and click on it.
Here, you can edit your tax calculation settings to enroll in ATEP by selecting ‘Enroll in Amazon Tax Exemption Program’.