The Basics of Amazon Sales Tax for Merchants: What You Need to Know

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Jun 28, 2022

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.

You finally have a store on Amazon and have started selling. Congratulations! You're in for a treat. Not only is selling on Amazon a great way to make some serious cash, but it's also a great way to learn about sales tax. That's right, sales tax. While it may not be the most exciting subject, understanding sales tax is essential for any Amazon seller. After all, you are responsible for collecting and remitting sales tax on your Amazon sales if you're a third-party merchant. But don't worry, understanding sales tax is not as difficult as it may seem.

There are plenty of pros to understanding sales tax. For one, you will avoid potential penalties and interest charges in the event you mistakenly fail to collect or remit sales tax. Additionally, you will be able to accurately calculate your taxes owed, which will help you stay organized and efficient come tax time. Understanding sales tax may not be the most exciting part of selling on Amazon, but it is important. So take some time to learn about it and enjoy the benefits of being a knowledgeable seller. It could save you a lot of time (and costs) in the long run!

Does Amazon Charge Sales Tax?

Amazon collects sales tax on "Fulfilled by Amazon" products sold by merchants to customers in states where the seller has a nexus (presence or location, such as a warehouse). Therefore, they collect and remit tax on behalf of their Amazon FBA sellers in almost every state. Note that Amazon only takes into account where the inventory is currently located.

However, a third-party Amazon seller must set up their own tax accounting system to keep up with the regulations and filing dates.

In short, if Amazon fulfills your products, you don't need to worry about sales taxes, but that comes with its cons, such as an increase in returns due to Amazon's return policy.

Marketplace Tax Collection on Amazon

Now it gets tricky! Amazon is not responsible for the sales tax obligations of third-party merchants. But new legislation passed called the Marketplace Facilitator transfers the sales tax collection and remittance obligations of state sales tax from third-party sellers to Amazon.

Amazon is now responsible for collecting, calculating, remitting, and refunding state sales tax for where the products are going, which contrasts with a sales tax nexus. Here's a list of states where this legislation is in effect:

AlabamaAlaskaArizonaArkansas
CaliforniaColoradoConnecticutDistrict of Columbia
FloridaGeorgiaHawaiiIllinois
IndianaIowaKansasKentucky
LouisianaMaineMarylandMassachusetts
MichiganMinnesotaMississippiNebraska
NevadaNew JerseyNew MexicoNew York
North CarolinaNorth DakotaOhioOklahoma
PennsylvaniaPuerto RicoRhode IslandSouth Carolina
South DakotaTennesseeTexasUtah
VermontVirginiaWashingtonWest Virginia
WisconsinWyoming

What is a Sales Tax Nexus?

The sales tax nexus is where a business operates, not the location of the buyer or where the product is going. For example, if a seller maintains physical locations in several states, such as offices or in-store retail shops, the seller must know each state's tax regulations.

Amazon also offers its own Sales Tax Calculator to help sellers determine the appropriate sales tax rate to charge their customers. Not only does Amazon collect sales tax based on location, but they also take into account the type of product or service you're selling.

The Different Types of Sales Taxes That May Apply to Your Business on Amazon.com

There are a few things to keep in mind when dealing with Amazon sales tax. First, you need to be aware of the different types of sales tax that may apply to your business, such as state and local taxes or county taxes. You will also need to understand how each product code is taxed in these places.

State and Local Taxes

The first thing to understand is that each jurisdiction has its own sales tax laws. Therefore, you will need to research the specific sales tax laws for the state or states you are doing business in. Also, some localities within a state may have their own sales tax laws. For instance, the city of Seattle has a local sales tax of 3.75% combined with Washington’s state sales tax of 6.50%, for a total sales tax of 10.25%.

County Taxes

One thing to bear in mind when dealing with Amazon sales tax is that some jurisdictions charge their taxes in addition to state and local taxes. These fees, which can range from 0.5% to 2%, are generally added on top of state and local sales taxes. Furthermore, certain counties may have different rules regarding sales tax collection.

Another factor to consider is how different products are taxed. For example, you may be selling goods, digital content, or services, such as streaming movies or consulting services.

Sales Tax on Goods

There are several things to consider regarding sales tax on goods sold on Amazon. First, you need to know the rates that apply to different products in your state or locality.

In addition, it’s important to know that some items may be exempt from sales tax collection altogether. These include items like food and certain types of clothing. However, these exemptions can vary, so you must do your research to ensure that you are correctly charging sales tax on all of your products with the right product tax code. 

You can find this information on Seller Central.

amazon sales tax - people shopping online

How to Maximize Your Profits and Minimize Potential Issues With the Tax Authorities When Selling on Amazon

One of your main goals should be to maximize your profits while minimizing potential issues with the tax collection authorities. There are several key steps that you can take to achieve these goals, such as carefully reviewing the tax laws for your state or locality and familiarizing yourself with the different types of taxes that may apply to your products or services. 

Additionally, it is important to keep accurate records of all of your sales and purchases to ensure that you are correctly calculating and remitting any taxes that may be due.

Unloop Your Worries!

As you can see, there are varieties of Amazon sales tax that may apply to your business. You need to be aware of these taxes and how they impact your bottom line to stay tax compliant and avoid hefty charges. Suppose you need help sorting through this complex information or want advice on the best way to manage your sales tax obligations. In this case, Unloop offers excellent bookkeeping services for small businesses. So unloop, take a breather, and give us a call at 877-421-7270 if you want to learn how to grow your business with comprehensive accounting.

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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.
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