Canadian and Amazon sellers like you always have room for growth, from selling in your own country to offering your goods and services in the neighboring one. Growth is, thankfully, an inevitable thing.
However, for success to come, online sellers need to work hard. The first step is to answer the most pressing questions sellers ask about Amazon sales taxes, especially when it concerns separate countries.
Let us help you in answering your questions on sales tax obligations, sales tax compliance, and everything in between. May these answers make Amazon sales tax for sellers like you easier to understand.
Although your operations are fully online, Amazon sellers still have tax obligations and laws to abide by. On Amazon, you need to be particularly familiar with the Amazon Marketplace Facilitator Law (MPF) regarding marketplace sales taxes.
The MPF used to be applied in American states only. However, Canadian provinces are now covered by the regulations too. Nevertheless, some states and provinces are not included in the legislation’s territory, so always check the details.
This law identifies Amazon as a marketplace facilitator of third-party sellers. Through it, Amazon is obliged to compute, collect, remit, and refund sales taxes on behalf of third-party sellers.
Amazon always charges sales tax if the item sold is taxable and unless the buyer is tax-exempt. However, although Amazon charges sales taxes, they are not always required to collect, remit, and refund sales taxes. There are states, provinces, and towns that are not under the MPF Law. In these cases, sellers will be the ones to process sales tax collection, filing, and refunds.
Sales tax rules already vary per state and local government, and it even gets more complicated because there are different requirements for MPF per locale too. As a seller, you must know when sales tax on Amazon will be handled for you and when you’ll be responsible for it.
As an Amazon seller, you must know whether Amazon will collect sales tax on behalf of your store or if you need to collect sales tax yourself. It is best to review Marketplace Facilitator laws on a general level, and how they apply to the states and provinces you deliver to.
In Canada, the general rule is you must apply sales tax reflecting the package's destination. Meanwhile, it is more complicated in America, where states have separate rules on which sales tax rates to follow. Some states apply the rate using the package’s destination, while others use the sales tax rate of the package’s source. There are also states in the US that do not charge sales tax.
The sales tax rate Amazon follows is the one that the Canadian and American states and provinces have established. They also collect and remit the same amount prescribed by the country's laws.
For American sales tax, you’ll need to know whether to use the origin or destination rate. Arizona, Illinois, Mississippi, Missouri, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, Utah, and Virginia base their sales tax on a package’s origin, while the rest base the amount they charge on the destination. California bases either on destination or origin, depending on local laws.
Here are the details of sales tax rates in America:
|State||State Tax Rate||Average Local Tax||Total Tax Rate|
Meanwhile, Amazon applies sales tax on the specific type of tax in Canada as the country has three tax types: General Sales Tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). Quebec Sales Tax (QST) is a rate specifically charged for this province, while Retail Sales Tax (RST) is specifically applied in Manitoba.
Here are the rates for all sales taxes, so if Amazon does not cover the other sales tax applied in a province, you’ll know. Note that it is your duty as an Amazon seller to charge, collect, remit, and refund them.
See below for details:
|Province||What Amazon Collects, Remits, and Refunds||PST||GST||HST (Combined Tax Rate of GST and PST)||RST|
|British Columbia||PST only||7%||5%|
|Newfoundland and Labrador||HST||15%|
|Prince Edward Island||HST||15%|
ATEP is the platform’s way of exempting individuals and groups from paying sales tax. For your customers to enjoy this benefit, they must submit complete tax information and documents on the Amazon platform.
In America, certain goods are tax exempted, like groceries, prescription and non-prescription drugs, intangibles, and feminine hygiene products. There are also certain tax-exempted goods in Canada, so make sure to check.
There are also groups and individuals in each country that are tax-exempt, like government workers, members of indigenous groups, and companies and individuals who buy products as manufacturers instead of end users.
There will be transactions where you’ll be the one to compute, charge, collect, remit, and refund sales tax, so investing in tax software will be handy. Some of the best tools you can try are Taxomate, Avalara, Taxify, HelloTax, and Taxjar. These tools are always updated with the latest sales tax rates, especially since sales taxes are always subject to change.
However, note that when you invest in software, you also need to allot time to learn how to use it. Some tools offer free training to get you started.
As you can see, sales taxes are complicated as sales tax rates vary per location. It would greatly help to have experts assisting you.
Experts can also help you utilize the tax document library Amazon provides. Although MPF handles the work for you, it is still good to see sales tax data and get a combined sales tax report.
You can make the most of your Amazon Seller Central account data through a partnership with an agency. Through professional expertise and the help of different accounting, bookkeeping, and taxation tools, an agency will turn data into easy-to-understand reports to help you in making decisions for your business.
Even if you’re just starting out on Amazon, it’s important to get a grip on the obligations you need to pay. We hope this article has enlightened you on the topic of Amazon sales tax.And if you need any assistance, our team of experts at Unloop is always here to help. Do you have any other pressing questions about Amazon sales tax, or do you need assistance in handling your company's sales tax? Contact us today to learn more about our services!
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.