Let's face it: as an Amazon seller, you've got a lot going on. You're likely running your own business, managing inventory and fulfillment, and perhaps even investing in product development. Thus, the last thing you need is extra work.
That said, it's important to be aware of sales tax regulations so that your business isn't hit with unexpected fees or penalties down the road.
The long and short of it is that Amazon charges sales tax based on your customers’ location in the US, even if your business is located internationally.
This guide will explain how Amazon sales tax works for both FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant) sellers—and how it may impact your bottom line if you're not careful.
Does Amazon Collect Sales Tax?
Let's start with a simple question: does Amazon charge sales tax? The answer is yes.
You probably gathered that from the introduction of this article, but there are some caveats to that sentence.
Amazon assesses, gathers, and remits tax for businesses on behalf of those merchants whose customers are situated in states that have adopted Marketplace Facilitator, Marketplace Fairness, or similar laws.
As a result of these restrictions, the marketplace on which the merchant relies to make a sale takes on the role of a collector.
To understand why it matters and when you should be paying attention to it, below is an explanation:
- For years now, consumers have enjoyed shopping online without having to pay any sales taxes on their purchases (or at least not very much). It seems like an unfair advantage: laws have long required brick-and-mortar stores to collect sales taxes in every state where customers shop in person.
- However, because no physical presence was required for ecommerce merchants or marketplace sellers, like Amazon FBA sellers who shipped through third parties, they didn’t owe any taxes.
- This has shifted, however, since states began imposing "Amazon Laws" requiring online retailers based outside their borders who sell into them (even indirectly) to collect applicable taxes from customers residing within those jurisdictions.
Which States Does Amazon Charge Sales Tax?
Depending on where your customers are located, you may have to pay sales tax on an Amazon purchase shipped to one of these states and territories:
- Puerto Rico
- Rhode Island
- South Carolina
- North Carolina
- South Dakota
- District of Columbia
- North Dakota
- New Mexico
- New Jersey
- New York
- West Virginia
How Does Amazon Do Their Sales Tax Collection?
If you're wondering, "how much sales tax does Amazon charge?", the total tax for your purchase will be based on a number of variables, including but not limited to the following:
- Knowledge of the vendor's identity;
- The specifics of the service or item being purchased;
- When and where it will be accomplished;
- Specifically, the location where your package will be delivered.
The total state and local tax rate in effect at the location of delivery or fulfillment will be the rate charged to your order. For example, if your product is being transported to a state that does have a sales tax, you may still be charged sales tax even if you are located in a tax-free zone.
If you're a vendor using Amazon's Fulfillment by Amazon service, the procedure is still taxing but Amazon can help you do the job efficiently!
Amazon is required by law to collect sales tax from customers in jurisdictions where it operates retail warehouses. This includes any warehouses, offices, or other facilities in a state that are owned or leased by Amazon or its affiliates.
In addition, Amazon is required to collect sales tax if they charge shipping and handling (S&H) and other fulfillment-related services performed at their fulfillment centers.
The laws vary from state to state but generally require you to collect sales tax if you're doing business in that state and make charges for S&H or fulfillment services.
How Does Amazon Sales Tax Work For Sellers on FBM (Fulfillment by Merchant)?
If you sell on Amazon, you need to be familiar with your state's sales tax policies and guidelines. This information is important to know so that you can properly calculate and collect sales tax on orders placed through your account.
- As a general rule, Amazon collects sales tax in states where they have physical presence (i.e., own or lease property).
- If your products are only being shipped from one fulfillment center in one state, then that would be considered a physical presence in that state for purposes of sales tax collection by Amazon.
- However, suppose your products are shipped from multiple fulfillment centers in multiple states. In that case, this may affect what states have jurisdiction over collecting taxes from your sale depending on how those two activities relate to each other under local law (this can get complicated).
Amazon's sales tax can significantly impact your bottom line. The good news is that you don't need to do anything if your items are sold through FBA to customers in states that have Marketplace Facilitator laws—Amazon will handle all the sales tax calculations and remittances for you.
However, if you sell directly through FBM, it'll be up to you to ensure that the proper amount of sales tax is collected from buyers.
Filing and Collecting Sales Tax the Unloop Way
As the rules of Amazon sales tax are ever-changing, you'll want to stay vigilant and keep up with the latest. This policy applies only to items sold through the Amazon marketplace.
Suppose you sell your products through a third-party marketplace like Etsy, eBay, or Walmart. In that case, they are responsible for collecting sales tax from their customers and remitting it to the appropriate state agency.
Using a bookkeeping service like Unloop is a foolproof way to make sure you can do all of these things and keep up with your sales tax collection. Our company excels in keeping track of inventory and finances. Don't waste time wondering if the figures are correct, and start using us to guide your business actions.
If you don't want to handle all the tax payments and online retailer tax rate, you can always hire us. Unloop, powered by both technology and experts, offers a comprehensive, individualized solution for ecommerce startups to take charge of their finances.Book a discovery call today!