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.
Since 2019, Amazon has seen a lot of success as the world’s largest eCommerce retailer. The company has made many strides since it was founded in 1994, but its most recent accomplishment may be just as major for small businesses across North America and Europe. The pandemic only made Amazon a safe haven for business owners by catering their products to continuously produce profits. New health protocols forced people around the globe to depend on online services to avoid physical contact, which is vital in containing the spread.
Aside from ecommerce, Amazon has other services like shipping, digital streaming, artificial intelligence, and even Amazon sales tax collection on behalf of third-party sellers, too! Read here and explore how an eCommerce giant manages to collect taxes in North America and Europe.
Amazon and Sales Tax Collection
Sales tax or consumption tax is a percentage of the final selling price of a product. It is collected by the seller and remitted to the right tax authorities. Sales tax can be paid directly or indirectly by the consumer when they make a product purchase. The sales tax is incorporated in the final price of the products, and you can validate it with your official receipt.
Depending on the country, sales tax has different variations. For example, if you are selling in the United States, the added tax value of the product is called sales tax. In Canada, they call it goods and services taxes or GST for short. And in the United Kingdom, the Brits call it value-added tax or VAT.
Amazon has to follow a set of rules when collecting taxes. There are different laws, jurisdictions, and rates that Amazon must include in its sophisticated tax algorithm.
Sales Tax in the United States
The United States of America has 50 states, and the percentage of sales tax in eCommerce varies between each state. The good news is that five states don't collect sales tax, such as Alaska, Delaware, Montana, New Hampshire, and Oregon. You are eligible to collect taxes if you have a sales tax nexus in a state. A nexus is a connection between a seller and a state wherein the seller must register to collect and remit sales tax to the state legally.
A nexus can be classified into two—the physical and the economic nexus. You have a physical nexus if you sell in a particular state or have a satellite office, warehouse, employee, or contractor in that state. You have an economic nexus once you collect and remit sales tax because you successfully reach the required threshold of that state. Even when you sell on Amazon before, you collect and remit sales tax. Today, Amazon collects and remits sales tax for all states where they have fulfilment centers.
GST in Canada
Amazon charges consumers in Canada with GST, and it has a standard rate of 5%. Some Canadian provinces charge PST or province-specific tax. You need to pay a harmonized sales tax (HST) once PST is applied together with GST. All in all, Amazon collects between 5% to 15% HST from Canadian consumers.
The formula for calculating HST is: GST + PST = HST.
VAT in the United Kingdom
VAT is a flat national rate and relevant for most European countries. If you have a business registered in a European country, an annual threshold of sales is applicable. For example, the United Kingdom has an annual threshold of £85,000. If your annual sales are less than that threshold, you don't need to register and collect VAT. You can only collect VAT if you reach or exceed £85,000.
There are other unique quirks with VAT in Europe reserved for US sellers, and one of them is the distance selling threshold. It works if you sell in the UK or other European countries to use the European Fulfillment network. If your annual sale is less than €35,000, you are not required to VAT registration. You only need to register when you hit €35,000 and more.
Please refer to the table below for the VAT threshold and rates in Europe.
| Country | VAT Threshold | Standard VAT Rate (%) |
| Austria (AT) | €30,000 | 20 |
| Belgium (BE) | €25,000 | 21 |
| Czech Republic (CZ) | €38,960 | 21 |
| Denmark (DK) | €6,700 | 25 |
| Estonia (EE) | €40,000 | 20 |
| Finland (FI) | €10,000 | 24 |
| France (FR) | €82,800 | 20 |
| Germany (DE) | €17,500 | 19 |
| Greece (GR) | €10,000 | 24 |
| Hungary (HU) | €24,600 | 27 |
| Ireland (IE) | €75,000 | 21 |
| Italy (IT) | €65,000 | 27 |
| Latvia (LV) | €40,000 | 21 |
| Lithuania (LT) | €45,000 | 21 |
| Luxembourg (LU) | €30,000 | 17 |
| Netherlands (NL)* | €1,345 | 21 |
| Poland (PL) | €46,980 | 23 |
| Portugal (PT) | €10,000 | 23 |
| Slovakia (SK) | €49,790 | 20 |
| Slovenia (SI) | €50,000 | 22 |
| Spain (ES) | None | 21 |
| Sweden (SE) | €2,870 | 25 |
| United Kingdom (GB) | €96,840 | 20 |
VAT and GST have higher percentages compared to their sales tax counterparts in the United States. It also means that VAT and GST put more pressure on profit margins.
Final Thoughts
Amazon is still evolving, and as a retail giant, it ensures that it has the finest algorithms to cater to the needs not only of its customers but also the demands of governments. Managing Amazon's sales tax revenue is a tedious task, and Amazon has created a well-organized method to satisfy tax authorities.
Do you want to venture into other eCommerce platforms aside from Amazon? Then, take time to read Where to Start With Shopify Accounting: An Inclusive Guide to the Dos and Don'ts and learn more about Shopify accounting.