What are the taxes you pay on Amazon FBA? 📋
There are different tax laws across different regions. Some tax laws are more lenient than others. For sellers on Amazon, tax laws can be a lot trickier to navigate.
In this blog, we will talk about the tax laws that come into play when running an FBA business. We will also touch upon different taxes that sellers need to pay on sales, and how they can do so on Amazon.
Introduction to Amazon FBA Taxes 📖
Profits from sales made by sellers on Amazon.com, Inc.’s marketplace, Fulfillment by Amazon (FBA), must be taxed through sales tax.
As a seller on Amazon, you must collect sales tax in states where your business meets the sales tax nexus and product taxability. This includes states where your business has a physical presence or a Customers are located, as well as states where you sell products through the marketplace.
Note that some states tax sales tax at a different rate than others, so it’s important to familiarize yourself with sales tax rates in each state where you sell products.
Additionally, businesses must abide by Amazon’s sales tax rules and be compliant with the new and extensive tax laws that apply to businesses like yours and remote sellers.
This includes reporting sales taxes on income taxes, filing sales tax returns and paying taxes on time, and properly reporting income. You can use tools such as Taxjar, Avalara, and Taxify to track and report sales taxes accurately and efficiently.
What Types of Taxes Do Amazon FBA Sellers Pay? 💸
There are different taxes that amazon FBA sellers pay.
Amazon FBA sellers are subject to sales tax in states where they have sales tax nexus and product taxability.
In addition to sales tax, amazon FBA sellers are also required to collect VAT (sales tax in India) on the products they sell. It is mandatory for amazon FBA sellers in India to register themselves with the sales tax authorities and get a sales tax registration number.
Besides, amazon FBA sellers must collect VAT on all the products sold on its platform.
Common deductions on amazon FBA taxes for sellers include the cost of inventory, commission fees, software fees, shipping, home office deduction, and business-related travel.
Customers pay sales tax when they buy a product and the seller deducts this amount from the commission and passes it on to the government.
Besides, amazon FBA sellers must ensure that all income collected from its sales is accounted for and taxed accordingly by the states in which their business operates.
When Does an Amazon FBA Seller Need to Collect Sales Tax? 💸
An amazon FBA seller must collect sales tax from their customers in states where the sales tax nexus and product taxability criteria are met.
The sales tax nexus means that a seller has a physical presence in a state. In states that have a sales tax, amazon calculates, collects, and remits sales taxes on behalf of sellers who ship to states with respective laws.
To work within the US tax laws, amazon sellers must collect sales tax. It applies to sales in states where your business meets the sales tax nexus and product taxability.
There are different sales tax rates and rules for ecommerce sellers depending on their market and sales volume. It is important to follow all applicable tax laws and regulations when selling on amazon FBA.
1. Sales tax nexus.
The sales tax nexus is a connection a business has with its state, either physical, economic, or both. In the United States tax history, physical nexus was used to determine tax liability, whereby a merchant or seller maintained a presence in a state. However, in recent years, states have formed an economic nexus with remote sellers who meet a minimum gross sales amount or sale count.
With the introduction of e-commerce and online sales, sales tax nexus laws have continued to evolve and change to account for new business models. Now that states can form an economic nexus with remote sellers who meet a minimum gross sales amount or sale count, businesses operating online must be aware of the nexus requirement and collect sales tax from their customers.
Sales Tax for Amazon FBA Sellers 🛍️
e-commerce sales tax is a tax that companies such as Amazon must collect and remit on sales made through their online platform. This tax is charged by the states where sales take place and are based on a seller’s sales volume and/or income.
In states with a sales tax, amazon FBA sellers are required to collect sales tax from customers if they have a business nexus there. Businesses meeting this nexus are taxed on their gross income from e-commerce sales.
Sales tax is a fee that customers pay when they buy a product and amazon calculates and collects this amount from the commission. The sales tax collected by amazon FBA sellers can be used to cover expenses related to shipping, office supplies, and other business expenses.
To remain compliant with US tax laws, amazon FBA sellers must collect sales tax and sell tax-free products in states that do not provide for such obligations.
Amazon FBA sellers should ensure that they are collecting taxes via amazon seller fees or other methods approved by the states in which they operate.
Other Taxes for Amazon FBA Sellers 🧾
Amazon FBA sellers are subject to sales tax, which customers pay when they buy a product.
Deductions on Amazon FBA taxes for sellers include the cost of inventory, Amazon commission fees, software and FBA subscription fees, shipping and office supplies, FBA seller continuing education courses, home office deduction, business-related travel, health insurance plans, and retirement plans.
Sales tax is a reality for everyone who sells goods in physical stores or online, but Amazon FBA sales tax is more complicated than for other retailers. Sellers must consider where their products are intended to be sold, how many steps there are from purchase to shipping an item, and other factors when calculating tax obligations.
For example, sellers based in states with sales tax typically have a sales tax nexus in that state. When a customer purchases an item on amazon.com or amazon.ca and the seller has a presence in that state (for example, has a fulfillment center or website), amazon automatically taxes the seller based on that nexus. Similarly, sellers with a physical presence in states without sales tax may be required to collect sales tax even if they don’t have a nexus there.
To avoid amazon’s sales tax collection process and amazon fees, it’s important for sellers to accurately track shipping and receive information from amazon as part of their amazon seller business.
Setting Up Your Tax Collection on Amazon ⚙️
You must be a Professional seller to collect sales tax on amazon.
Most states have marketplace facilitator laws, meaning the responsibility of collecting and remitting sales tax is on the marketplace.
Amazon by default collects sales tax on your behalf in states where marketplace facilitator laws exist.
Amazon’s marketplace supports sellers to calculate tax on their sales per their instruction.
Also, amazon requires sellers to report and pay tax on income from sales made through amazon’s marketplace as per applicable tax law, country regulations, and amazon’s policy.
Amazon refunds tax if the seller doesn’t have a valid tax registration number issued by a tax authority.
Finally, Amazon offers multiple tax reporting options for sellers including a self-service tool on its website to help them keep track of their taxable income from amazon’s marketplace sales.
How to File Your Amazon FBA Taxes 📑
You must register with the IRS and make tax filing choices in order to fulfill your tax obligations for Amazon FBA.
When filing your taxes, you need to pay payroll taxes based on income from selling Amazon FBA products and other associated expenses, such as state and local taxes.
You can use a payroll tax preparation service, a tax software program, or consult an accountant to complete and file your tax return [101, 102, 103]
You need to file Form 941 to report employee wages and taxes paid during the quarter. This form includes information about income earned from sales of goods on Amazon.
If you have any additional questions about how to file taxes for Amazon FBA sales, visit the IRS website or call the tax helpline for assistance.
Amazon FBA taxes may seem like a hassle, but if you’re collecting sales tax, they’re a must-have. You’ll want to make sure you’ve got all the information and paperwork you need to file sales tax returns on time.
And when it comes to amazon FBA taxes, it boils down to two things: filing sales tax returns accurately and efficiently and staying organized and tech-savvy.
If you follow these tips and use technology like automatic tax collection software to manage your tax collection process, you can streamline tax collection and save precious time.