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Our accounting services are exclusive to inventory businesses in the United States and Canada

Calculate Sales Tax on Amazon Correctly and Easily

Michael Pignatelli
Last Updated on August 31, 2023

It's that time of the year again! Filing and paying your taxes is as certain as sunrise. The tax season comes every year, no matter how much you dread it. It’s best to get it over with, yeah? However, it may not be as straightforward as you would like it to be. Ecommerce enjoys continuing growth these days, and tax laws have yet to catch up.

Unlike a brick-and-mortar store, which is subjected to local and state tax-related regulations (such as value added tax, retail sales tax, and consumption tax), an ecommerce store goes beyond state and national borders. For instance, in the United States, calculating sales tax becomes more troublesome for ecommerce sellers due to how tax laws vary from one local government to the next. So, as you can imagine, calculating your taxes has become harder.

In this article, we will explore how Amazon deals with sales tax and the best way to settle your sales tax so you can focus on your business. Scroll down and read more!

How Do You Calculate Sales Tax?

As you may already know, sales tax and related regulations (like value added tax, retail sales tax, and consumption tax) differ from state to state. For example, the sales tax in Illinois starts at a base rate of 6.25%, while in Colorado, the sales tax rate is 2.9%. Moreover, sales tax policies continuously change, as reflected by how many states Amazon collects sales tax in. Specifically, from only collecting from five states in 2011, the company now collects sales tax from every state. 

Navigating your way through state sales tax and local sales tax laws is indeed confusing and frustrating.

As a third-party seller, you are also bound to the same obligation as the online marketplace is. In other words, you have to pay sales tax for each taxable sale you make. So how do you compute sales tax anyway? How much is the taxable amount? First, you have to settle these three questions:

  1. Which states do you have a sales tax nexus?
  2. Who collects the taxes, and in what manner?
  3. How is tax remittance processed?

At this point, you may have realized that there is no single answer to this question. Instead, calculating sales tax depends on multiple factors, mainly the state and local government tax laws that apply to each sale. As a result, many sellers opt to pay Amazon or hire a third-party service to do this complicated and time-consuming work.

Can I Have Amazon Calculate Sales Tax for Me?

calculate sales tax - Amazon sign on building

Fortunately, Amazon can collect your sales tax for you, but this comes with a few caveats. For instance, Amazon is only required to collect taxes on your behalf if Marketplace Facilitator legislation is in place. If you're unsure about this, you can think of such legislation as a set of laws that make Amazon responsible for sales tax collection. You can consider it a win for sellers like you since it ticks off sales tax collection from the list of things you have to worry about.

However, if the states you conduct business in do not require Amazon to do sales tax collection for you, you have three options: 

  1. Do it yourself with help from a sales tax calculator.
  2. Pay Amazon an extra fee to do it for you.
  3. Hire a professional team of accountants and bookkeepers to settle everything for you.

If paying the 2.9% fee Amazon charges for each taxable sale you make sounds alright for you, start with setting up the sales tax collection function on Amazon Seller Central. You may take your time to carefully understand the more detailed information about this process on Amazon Seller Central. If you insist on using their tax calculation service, here are the steps on how to do it:

  1. Navigate to Seller Central and find the "Settings" menu.
  2. Click the "Tax Settings" button.
  3. Ensure that you have reviewed the Product Tax Codes to use them properly across your inventory.
  4. Select the appropriate state you wish to process your sales taxes in.
  5. Enter a valid State Tax Registration Number. If you don't have one, you have to obtain one.
  6. Select the taxes that the system will have to compute.
  7. Set up the default Product Tax Code or PTC.
  8. If you are content with your settings, click "Save Settings."

Amazon will automatically do the tax calculation, but you have to ensure that you have entered the appropriate details and configured the right settings. Again, the company rests the responsibility for this on the sellers themselves.

How Can Unloop Help Me Calculate Sales Tax?

calculate sales tax - Accountant adjusting his wristwatch

If you want to take your business on auto-pilot, slowly removing yourself from the nitty-gritty of its day-to-day operations should be your priority. That includes having someone you can trust do the taxes and finances of your business. If you have someone with expertise and trustworthiness take over the finance side of your business, you can focus on more important things.

Unloop consists of a team of experts with years of experience in the ecommerce sphere. So you can trust Unloop to know the ins and outs of ecommerce. Not only can Unloop help you with your taxes, but it can also take the heavy burden of accounting and bookkeeping off your back. So what else can Unloop do for you?

Combines Human Expertise and Software Automation

If you want to take your business to new heights, you should pave the way for its potential growth. One of the many things you can do is make sure that your business is always on the right side of the law, particularly tax law. Unloop combines the experience and expertise of its team of ecommerce experts and the benefits of automated software. 

While Unloop can't file the taxes for you, our team of accounting experts can do the tax prep work. So when it's time to file and pay your taxes, you can expect the necessary paperwork to be all set and ready. If you have any questions or need help regarding your sales tax, Unloop's team is always ready to help.

To be able to bring you accurate tracking and timely reports, Unloop partnered up with TaxJar, one of the industry-leading sales tax compliance solutions. TaxJar's cloud-based platform automates the tedious process of doing tax calculations and identifying your sales tax nexus. Since it's all automated, you can rely on it to render near-perfect results in record time.

Accurate and Speedy Bookkeeping

Unloop can dive in and rescue you from this mess if you have messy books and financial documents cluttered across your desk. Through our team's seamless onboarding process, we get to know how your business is performing and the status of its books. Are they accurate? Are they updated? If they aren't already, Unloop will ensure so in the soonest possible time.

Unloop unleashes its impressive stack of accounting and bookkeeping software to accomplish this challenging endeavor. Unloop takes advantage of the industry-leading features and performance of Quickbooks Online, A2X, and Xero. Our team may also include other software to tailor the experience for you and your business.

Final Thoughts

Now that you know the three ways to figure out the sales tax amount, you can weigh the pros and cons of each of them. But, of course, doing it yourself means spending time away from your business trying to get your head around the tax laws for each state you have a tax nexus in. Meanwhile, Amazon will charge you a significant amount for each transaction, cutting into your income.

On the other hand, you can take advantage of Unloop's expert team to take your business's accounting and bookkeeping off your hands. Our bookkeeping package includes monthly income statements, balance sheets, cash flow statements, accrual-based financial statements, etc. Aside from bookkeeping, we can also settle your income tax and sales tax, coupled with excellent customer service.

Once you let Unloop take charge, you won’t know what to do with the free time in your hands. Contact us today!

+1 877 421 7270
228 Park Ave S #82849
New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
228 Park Ave S #82849
New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
About unloop

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.