Disclaimer: 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.
The Amazon tax calculator is a valuable tool for sellers and buyers on the popular online marketplace. Taxes are complicated—in fact, they’re the most dreaded task for many ecommerce sellers. However, only in understanding taxes can sellers fully comply with applicable policies and continue to run their businesses.
Whether you are a small business owner or an individual seller, the calculator simplifies computing sales tax on your Amazon transactions based on your specific location. It also enables buyers to estimate the total cost of their purchases, including sales tax, avoiding any surprises upon checkout.
The Amazon tax calculator is an essential resource for anyone buying or selling on this widely-used platform. So let's dive into sales taxes and how they are computed in this article.
Before we dive into the Amazon tax calculator itself, let’s first understand the basics of Amazon taxes—sales tax and nexus. You’ll often come across these two in your journey as an Amazon seller. Let us help you shed some light on these terms:
In general, 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 merchant of the goods or services is responsible for collection and remittance.
This tax form makes up a significant amount of the government's revenue, levied in small amounts but compounding from every business exchange between a seller and a final consumer.
An economic or sales tax nexus is the state where you do business, initially where your business is registered. However, due to recent changes in how people do business, important revisions have been made to determine an economic nexus, making the process all the more complex.
For example, sellers in Amazon and other online marketplaces can now merit multiple economic nexuses when they reach a certain threshold in interstate sales.
Economic nexus in today’s ecommerce markets largely depend on the business relationship between a seller and a state. Physical location takes a back seat as a determining factor.
Instead, a financial threshold system is utilized, where the annual volume of business transactions becomes the state's benchmark for establishing 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.
Revenue threshold and physical business location are not the only determining factor of economic nexus. The state tax laws vary depending on the state you do business with. If you're huge on Amazon and have a broad scope of operation, you could have multiple economic nexus.
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:
When you use Fulfillment by Amazon (FBA), your inventory is stored in Amazon warehouses across various states. This situation counts as a sales tax nexus and requires you to pay sales taxes accordingly.
You need to get a sales tax permit in your nexus to comply with the laws. After registering, you will receive an Employer Identification Number (EIN) from the state's revenue department, which you will use to file your sales tax returns.
Many states have enacted Marketplace Facilitator laws, shifting the responsibility of collecting and remitting sales taxes from individual sellers to the marketplace—in this case, Amazon. These laws aim to simplify sales tax collection for small businesses, as Amazon automatically calculates, collects, and remits taxes on applicable sales.
But as an Amazon seller, you're still responsible for filing your state sales tax returns and ensuring you're properly registered in your nexus states. An Amazon tax calculator can help you estimate your sales tax liability and stay ahead of due dates.
To generate a date range report, go to your Seller Central account, select Reports, and choose the appropriate filing period. This report will provide you with valuable information on your sales volume and tax amounts, which will help you stay compliant with state tax regulations.
Familiarizing yourself with state tax regulations and monitoring policy changes can be time-consuming and complicated. But remember—it's your responsibility as an Amazon seller to adhere to state tax regulations and maintain accurate records.
By staying informed and proactive in your tax compliance, you'll protect your business from unexpected tax liabilities and ensure a smooth selling experience.
Imagine manually calculating each transaction you incur in every state to determine the amount to charge sales tax on. That could take forever. 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.
Amazon’s sales tax calculator uncomplicated this process. In fact, due to MPF laws, you don't have to calculate sales tax on every nexus state you're in; Amazon does it for you.
However, you must note that Amazon does not collect sales tax in some states. In this case, Amazon can calculate the sales taxes, but you must remit them yourself.
Setting up tax collection on Amazon involves registering for a sales tax permit and configuring tax settings in your Amazon seller account. This process ensures tax law compliance, allowing accurate collection and remittance of sales tax from Amazon customers.
To get a sales tax permit, you should contact your state's revenue department and follow their guidelines. In most cases, you will need to provide your Employer Identification Number (EIN) and other business-related details during the registration process. After securing a sales tax permit, set up tax collection on Amazon.
To configure your tax collection settings on Amazon, follow these steps:
After configuring your tax settings, Amazon will use the provided information to calculate, collect, and remit sales taxes on your behalf for transactions within your nexus states. This allows you to focus on growing your business.
It is still your responsibility to file your sales tax returns with the respective state revenue departments. To monitor your sales, use Amazon Seller Central's Generate Date Range Report feature, which provides valuable information to help you stay compliant with your sales tax filing frequency schedules and due dates.
When dealing with Amazon transactions, calculating sales tax can be a bit complicated. However, understanding how it works is crucial for staying compliant and maintaining good standing with tax authorities.
In this section, we will cover two main types of sales transactions: Amazon Prime sales and eCommerce sales. In both cases, you will need to utilize the Amazon Tax Calculator to accurately calculate and collect sales tax.
Amazon sellers like you can enroll in the Amazon Prime program. Amazon Prime utilizes FBA. In this case, Amazon helps you collect the appropriate sales tax on your transactions. However, it’s essential to understand your sales tax obligations and ensure that your sales tax nexus is correctly identified. Here are the steps:
Sellers operating an eCommerce store outside of Amazon still need to take care of sales tax calculations and filings. Here's a step-by-step to help you manage your sales tax obligations:
By staying informed and following these guidelines, you can efficiently manage your sales tax responsibilities and maintain good standing with tax authorities. Learn to keep up with changing regulations and consult with tax experts to avoid any potential issues or penalties.
The Amazon tax calculator is a valuable tool for sellers and buyers. It simplifies calculating sales tax on Amazon transactions based on specific locations, benefiting sellers by helping them understand and manage their tax obligations more efficiently.
Sales tax collection is complicated, especially for eCommerce sellers, but Amazon operates under the Marketplace Facilitator Law to collect and remit sales taxes on behalf of the sellers. The calculator eliminates the need for sellers to calculate sales tax in multiple states manually they have economic nexus in, thus saving time and effort.
If sales taxes are something you cannot handle on your own, note that you can always seek assistance from experts. Unloop can be your partner. We have solutions for Amazon sellers. Book a call with us today.
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.