Everything You Need to Know About Amazon Sales Tax Exemptions and How to Apply for It

Michael Pignatelli
Apr 12, 2022

Almost everything you purchase and sell online is imposed with taxes, and neglecting your responsibility to pay the correct tax will cause problems with the law. Fortunately for sellers, big online marketing platforms like Amazon have programs that help collect the appropriate tax for your goods so you can file and pay accordingly. 

As an Amazon seller, it's your responsibility to collect and pay the sales tax for the items you sell. Depending on the state or country you are in, sales taxes can vary. If you're new to the e-commerce business, handling taxes can be frustrating. We’re sure you have a lot of questions involving taxes. 

This article will walk you through one of the most common questions asked in the online selling business. Amazon tax exemptions. Who is eligible for these exemptions? How do you apply for these exemptions? Continue reading below to know more about sales tax and its exemptions. 

Does Amazon handle the collection of my sales tax? 

If you think keeping track of your sales taxes on Amazon is difficult, you've got it wrong. You don't need a professional to catch up with taxes because Amazon can do it for you. Amazon already adds the necessary tax once the item is checked out for everything a customer purchases from your business. 

Once the sales tax is collected from the purchase, it is then remitted to the proper tax collection agency for tax tracking. This Amazon feature is very hassle-free, especially for sellers with little knowledge about taxes. Moreover, all the sales taxes collected are organized and summarized in your Amazon seller central account. You can use this report when you file for your taxes at the end of each fiscal year. 

Why are sales taxes higher in the Amazon marketplace?

If you'll notice, Amazon charges a higher than usual sales tax rate on your goods. The higher rate is because they charge a service fee for all the tax handling they do when you sell your goods. For small businesses, higher rates can affect the growth of the business. Sometimes, the taxes make or break the progress of one’s company. 

However, Amazon saves you time and resources when it handles the collection for you. It also helps prevent filling wrong tax reports that may lead to penalties. 

Is there any way for my business to have a sales tax exemption? 

There is an Amazon's Tax Exemption Program (ATEP) available for eligible businesses. This program gives your business more considerations that could cater to its growth. But before you apply to the ATEP, you can check first if your business is already eligible for exemptions. For example, businesses or organizations that fall under religious, schools, and charity sectors are eligible for tax exemptions in state laws. 

If your business does not fall under these categories, you can still apply for Amazon's tax exemption program through the Amazon tax settings dashboard. 

How can I enroll in the tax exemption program? 

The Amazon sales tax exemption enrollment is not a complicated application. All you need to do is sign into your Amazon seller account as the primary holder. Only primary holder accounts can apply for the ATEP. Once you're in your seller account, you can find the tab on tax exemption certificates. 

Fill out some forms, provide IDs and wait for your tax exemption certificate. Make sure to provide valid details to get your approval faster. 

tax free 

How does the tax exemption work? 

Applying for sales tax exemption may seem too easy at first glance, but buyers must also be enrolled in the exemption program for their goods to have an active exemption. This means that the exemption only happens when both the buyer and seller are enrolled in the ATEP. 

Amazon will automatically remove the additional tax of the item upon the buyer's checkout. This exemption will apply to all your products upon checkout if the consumer and seller have Amazon tax exemptions. 

What's the benefit of enrolling in the Amazon sales tax exemption program? 

When enrolled in the tax exemption program, Amazon automatically handles all the buyers with exemptions and without. Therefore, it won't be a hassle for you to change the prices for buyers eligible for exemptions. All changes, increase or tax-free, are applied upon check out. Furthermore, Amazon stores the document of the exemption certificate of your buyers in your seller profile, and you can pull it up whenever you need it. 

For buyers in the exemption program, they can easily filter tax-free products. This feature will help the buyers look for the product more efficiently and potentially raise your business's sales. 

Will I not pay taxes when I apply for the Amazon tax exemption? 

The ATEP is for Amazon sales tax exemption only. At the end of the fiscal year, you still need to report to your corresponding tax collection agency for the annual income report. Your incomes from your sales in the marketing platform can be imposed with taxes according to your state or country's laws. 

Income taxes are completely different from sales taxes. If you need help filing for income taxes, you can seek the help of a professional to help you with the process. With their help, you can file appropriately, prevent any miscalculations and pay your tax obligations on time. 

Final Thoughts 

The Amazon tax exemption program is especially helpful for small businesses. By having their products exempted from sales tax, they can reduce the amount from their total incomes by each tax year. 

With lesser incomes to declare, the tax they need to pay will also be lowered, which can help them expand their business further. Sales tax exemptions may not affect big sellers, but it allows smaller businesses to grow and have more opportunities. 

If you are new to ecommerce marketing, many things may confuse you. We hope this blog post helped you shed light on the confusing parts of online selling. If you need more help with your taxes, see the services Unloop can offer your ecommerce business.

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Markham, ON L3R 2N2
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Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.