How US sales tax works with Amazon FBA 🛒
The tax laws governing sales tax in the US are quite a fickle bunch. That is why if you are an Amazon seller, you need to ensure compliance with sales tax laws. And when it comes to sales tax, US sellers must comply with a multitude of state tax laws.
Over the years, new rules have been introduced and old ways of doing things have been questioned. Most importantly, there has been a huge increase in tax regulations and compliance requirements in recent times.
If you’re an Amazon seller that handles sales in multiple states, understanding sales tax compliance can be a daunting task. Let us give you a comprehensive understanding of how sales tax works with Amazon FBA and how to comply with it as an Amazon seller.
What is Amazon FBA and how does it work in the US? 🗽
Amazon FBA is a service that provides sellers with product storage, distribution, and delivery. It was first introduced in 2007 and has quickly become a popular sales channel for businesses of all sizes.
Amazon FBA offers a variety of benefits to sellers. With the service, sellers can have their own shipping infrastructure, control their shipping costs, and find new customers without having to invest in expensive advertising campaigns.
Since its inception, many sellers have found success using amazon FBA. This is because it allows them to reach a large audience while saving on costs associated with shipping and handling products.
The biggest advantage of amazon FBA is that it reduces seller exposure to shipping delays and limbo periods. Moreover, it ensures faster fulfillment and a better customer experience.
The amazon FBA seller program also offers a number of tax benefits and incentives including seller fees and a fulfillment center subsidy.
Amazon FBA sellers are required to collect sales tax from customers in states with a sales tax nexus. However, Amazon collects tax from FBA sellers on behalf of state governments where the seller’s fulfillment center is located or registered tax agent file return h2
How do Amazon sellers comply with sales tax in the US? 🇺🇸
If a seller is collecting sales tax in the US, it’s vital to register as a professional seller and collect sales tax.
To register as a professional seller on Amazon, you’ll need to meet certain requirements established by the state in which you intend to collect sales tax. e.g., filing tax returns, collecting taxes from customers, and operating as a business.
As a seller, you must also comply with any additional requirements specific to your product or service.
When collecting sales tax on a purchase through Amazon, it’s essential for sellers to track and report their sales taxes accurately. This is crucial for ensuring that they’re collecting the correct amount of tax from customers and complying with any local tax obligations.
Sellers should also use reports in their Seller Central accounts to view sales and sales tax details.
By following these tips and practices, amazon sellers can easily collect sales tax on purchases through the marketplace facilitator law of their state.
1. Register for a seller’s permit in that state 📋
As a seller on Amazon, you must register for a sales tax permit in the state where you are doing business.
Depending on the sales volume and filing frequency schedule determined by your state, it may take some time to complete the sales tax permit registration process.
Once you have completed the permit registration, you will be able to collect sales tax on your sales. The rate and type of sales tax collected by a seller depends on the sales tax rate of the state where they are doing business.
In total, 45 states and the District of Columbia currently collect sales tax, with 38 of those states collecting some form of local tax as well. However, if you are selling goods to customers in multiple states, it is important to keep track of what sales tax rate is being charged in each state.
2. Charge sales tax to customers in that state 💵
As a seller on Amazon, you must collect sales tax from your customers in states with a sales tax nexus. You are required to charge sales tax to your customers in that state.
In addition to collecting sales tax from customers in states with a sales tax nexus, you must also report and remit sales tax to the appropriate tax authority. The state sales tax rate usually applies to the sales price of a good or service.
For example, if a customer buys a product for $100, the seller must charge a sales tax of $20 and report that amount to the appropriate tax authority.
Amazon collects and remits sales tax on behalf of sellers in all 50 states. Marketplace facilitator laws have been enacted in all 50 states, with Missouri’s law going into effect on January 1, 2023.
As a seller on Amazon, you can use our tools and services to help manage sales tax collection and remittance for Amazon FBA sellers.
3. File sales tax returns in that state 📜
Amazon sellers must choose between two sales tax plans when setting up their seller account: Individual or Professional.
Individual sellers are responsible for collecting sales tax on their own and filing sales tax returns.
Professional sellers, on the other hand, have a sales tax representative who collects sales tax on their behalf and files sales tax returns for them. In some cases, this sales tax representative can also be a law firm or accounting firm.
Amazon sellers must track and report their sales taxes and correct any discrepancies in their reports. Reports containing sales and sales tax details can be accessed within Seller Central.
All fifty states, Washington DC, and some local jurisdictions have the necessary systems to determine the tax owed, apply it to the order, and collect it on behalf of the seller.
What are US marketplace facilitator laws? ⚖️
Marketplace facilitator laws are tax policies that require online marketplaces, such as Amazon, eBay, or Etsy, to collect and remit sales tax on behalf of their merchants.
These tax policies are designed to simplify the state’s process for recouping as much sales tax as possible. In states with marketplace facilitator laws, marketplaces must calculate sales tax and report it to the relevant tax authority on a seller’s behalf. They must also certify in writing that they have fulfilled this obligation.
These tax policies are in effect in 37 states and Washington D.C. and aim to level the playing field for local businesses across the country. By requiring online marketplaces like Amazon to collect and report sales tax, shoppers can be sure they’re paying the correct amount of tax when making purchases.
This helps local businesses flourish and creates a fair and efficient marketplace for all participants.
What can help you handle Amazon FBA sales tax? 📋
In sales tax compliance, collecting sales tax from customers is necessary when selling goods on Amazon FBA. As a seller, you must abide by the official sales tax rules of each state. Furthermore, to remain compliant with US tax law, Amazon FBA sellers must collect sales tax in states with respective laws.
For marketplace facilitators, such as Amazon and remote sellers, using Amazon FBA provides a convenient way to manage sales tax obligations. Therefore, it’s important for sellers to understand the complexities of sales tax before launching a marketplace business on Amazon.
In addition, sellers can consult the sales tax guide for Amazon FBA 2022 for more information about collecting and reporting sales tax. The guide provides a comprehensive overview of sales tax obligations for sellers on Amazon.
Stuck on taxes, rather than your customers? 👥
If you are a seller on the Amazon F-commerce platform, then it is important to understand the sales tax requirements of your state. As a seller, you must comply with Amazon’s sales tax rules and collect sales tax from customers in states with a sales tax nexus.
The sales tax nexus is established when a business has a location, personnel, inventory, or an affiliate in a state. It varies from state to state and must be taken into consideration when collecting sales tax for taxable products.
The rate of sales tax also depends on the type of business structure and its income level. Thus, it is essential to have a tax compliance plan in place so that no sales tax-related complication occurs. Instead of facing this headache, it’s better to have a thorough understanding of sales tax requirements beforehand so that no issues arise later on.
Stay on top of tax compliance 🔝
❶ Understand the concept of a “sales tax nexus”. A sales tax nexus is a state or local tax jurisdiction in that a business must have a physical presence in order to be required to collect and report sales tax. If a business does not have a sales tax nexus, it may still be required to report and pay taxes for sales made to customers in that jurisdiction.
❷ Become familiar with product taxability in the states that require sales tax. Sales taxes are typically assessed on items purchased for use, consumption, or resale, but some jurisdictions also tax services, such as software licenses or bank account interest.
Many US states levy a sales tax rate of between 0% and 10% on various purchases. In some instances, local jurisdictions may also impose additional local sales taxes, which might be based on the local rate or a percentage of the state rate.
❸ Complete all associated tasks of business owners, including filing and collecting taxes. Business owners should be familiar with the tax implications of each item they sell and the steps necessary to file and collect sales tax from customers.
It’s important for business owners to keep track of all applicable state and local tax laws so they can properly account for their sales tax obligations. Additionally, it’s vital to complete any required filing deadlines and to monitor compliance with any new regulations as they become available.
It is not easy to comply with tax laws, especially when you operate a business from multiple states. We hope this blog helps you understand the basics of sales tax compliance and how it applies to Amazon Fba seller fulfillment centers.
Though there is no way out of tax compliance, avoiding filing a sales tax return is a good start. As an Amazon seller, staying vigilant about tax updates and filing sales tax returns on time can help you stay compliant.
If you are looking for help with sales tax compliance, we offer a range of sales tax services that enable you to file sales tax returns online and get sales tax remittances faster.