Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
One of the most dominant taxes that Amazon collects from its buyers is the sales tax. It is charged on top of the purchase price and is deposited into the seller’s account. The merchant then has an obligation to remit the taxes. But the exact amount may not be reflected in a seller’s account because account deposits are made in a lump sum.
This is one of the challenges most Amazon sellers face in their online business. It’s also something they cannot ignore, especially when their ecommerce business is growing. They want to know how much sales tax they should remit. Let Unloop answer this question.
How Is Tax Calculated on Amazon?
The question of how does Amazon calculate sales tax has no simple answer. That’s because many factors go into a sales tax, so the answers vary depending on where you’re doing business, among other things.
To answer this question, we’ll have to dive deep into what sales tax is to get an idea of how it works.
What Are Sales Taxes?
Sales tax is levied whenever an item is sold or a service is rendered. This tax is imposed on the final consumer during the point of sale. This means the seller of the goods or services is the one responsible for its collection and remittance.
This form of tax makes up a significant amount of the government’s revenue. The sales tax is levied in small amounts but makes up for it in quantities because of its presence in every business exchange between a seller and a final consumer.
As simple as it may seem, sales tax collection is complicated. Most especially for ecommerce sellers such as those who are on Amazon.
The Sales Tax Nexus
Simply put, an economic nexus or a sales tax nexus is a state where you do business. That means the state where your business is legally registered.
Due to recent changes in how people do business, there have been some revisions to the rules on determining an economic nexus. For example, the existence and growth of ecommerce sellers participating in marketplaces such as Amazon can now have multiple economic nexuses.
The determination of today’s economic nexus largely depends on the degree of business connection a seller has with the state in terms of business. The physical location is placed on the back burner as a determiner.
Although physical location is still recognized, it is largely replaced by a financial threshold system wherein the level of business transaction amount per annum is the metric a state uses to determine whether you should be put under their jurisdiction.
For example, if you do business in Arkansas (AR) and reach more than $100,000 selling to consumers in that state, you’ll have to account for sales tax deductions.
Determining Your Sales Tax Nexus States
To say that revenue threshold is the only determining factor of economic nexus is oversimplified. The state tax laws vary depending on the state you do business with. That means if you’re huge on Amazon and have a wide scope of operation, you could have multiple economic nexuses.
A lot of factors come into play when you determine your nexus state. The primary one is whether the state you’re doing business with levies sales tax on the transaction origin or the destination. But there are other factors, such as the following:
- The state where your goods are stored for inventory
- Whether you have business affiliates from other states
- Whether hire staff from other states remotely
- A click-through nexus
Back to Amazon Sales Tax Calculation
Returning to our question: if you’re an Amazon seller and need to pay sales tax, how is it calculated? Given the above mentioned factors, once you’ve determined all your economic nexus and you meet the criteria, you’ll have to research the sales tax rates on your economic nexus.
Note that the tax rates are not the same for each state. Additionally, each state has multiple jurisdictions and all of them may have different sales tax compliance requirements, even if they are in the same state. This is because of local sales taxes.
Is There an Amazon Tax Calculator?
We get it, sales tax calculation is tedious. Imagine manually calculating each transaction you incur in every state to determine the amount to charge sales tax on. That could take forever to do. On top of that, you also have to officially register for a sales tax permit in every state you have a link nexus on, which takes time and effort.
It would be easier if Amazon had a sales tax calculator, and they do. In fact, due to marketplace facilitator laws, you don’t have to calculate sales tax on every nexus state you’re in; Amazon does it for you.
The government polices the marketplace to comply with sales tax laws and collect sales taxes on behalf of the seller. This relieves the pressure of calculating exactly how much you should charge for sales tax.
But there’s a catch: In some states where Amazon does not collect sales tax, sellers may calculate it, but they remit it to your account. Then it gets mixed up with your sales revenue, and that’s where you have to do the tedious manual work.
Unloop Can Ease Your Sales Tax Woes
Part of the burden of collecting sales tax is knowing how to set it up on Amazon. Without setting up your nexus in the marketplace, Amazon may not collect or calculate sales tax on your behalf. This is where Unloop can help out—we can assist in setting up your nexus in the marketplace and make things easier for you. This way, all you need to worry about is nexus registration and sales tax remittance to states where Amazon doesn’t do it. So book a call, or check out our ecommerce services now.