How to Set Up Tax Exemption on Amazon: Questions Answered

Michael Pignatelli
Dec 22, 2022

Every seller wants tax exemption; there's no exception. If we can channel every dime we pay to our company instead of the government, we'd all be happy businesspeople.

That said, we need to know what tax exemptions apply to our businesses. It will help us get a financial advantage that we can leverage to grow our ecommerce enterprise.

If you're a business owner selling on Amazon, let Unloop shed some light on how to use tax exemption on Amazon and ensure you're set up to get this privilege.

What Is the Amazon Seller Tax Exemption Program?

Before you set up a tax exemption on Amazon, it's important to know that when you opt in for this privilege, you'll be under the Amazon Tax Exemption Program (ATEP).

This program lets you purchase your supplies or raw materials within the Amazon network without added taxes. In effect, you'll get a discounted price on your purchase because the tax on top of it is removed.

How To Set Up Tax Exemption on Amazon?

To know how to enroll for tax exemption as an Amazon marketplace merchant, we'll have Amazon explain the step-by-step procedure on how to do it. You may find out more about the ATEP and how to set it up on your account here.

To enjoy the ATEP, you'll have to fulfill certain things first, which will be discussed in the following section.

Can a Seller Have Amazon Tax Exemption on Their Seller Central Account?

No, they can't. Amazon Seller Central is a merchant's selling platform. Consequently, it's also a channel where you collect sales tax from customers and remit them to the appropriate tax authorities.

The Amazon Tax Exemption Program applies to sellers who purchase their merchandise or raw materials from Amazon, their affiliates, and other Amazon sellers.

To get tax exemptions for their purchases, they must sign up for an Amazon Business account.

Do I Have To Enroll for Amazon Tax Exemption?

Yes, you do. In most cases, you'll have to apply for sales tax exemption if you're purchasing from another Amazon business or seller. But if you're a merchant that resells products, you will be enrolled automatically.

As a result, an Amazon seller who buys one product from another Amazon merchant and sells it for a profit will have their sales tax automatically waived due to ATEP.

On the other hand, remember that this may still depend on the taxing authority where the order is going. If a destination nexus state needs a requirement to be fulfilled, the merchant must submit it before any exemption takes place.

how to set up tax exempt on amazon - A ripped brown carton revealing the word “tax exempt” on white background

What Are the Requirements Needed for Amazon Tax Exemption?

Documentation requirements vary by state or taxing authority. But the primary requirement for Amazon is called the tax exemption certificate.

You will have to enroll for this certification, depending on your industry. But if you're a reseller in the Amazon marketplace, the entity will automatically enroll you in the ATEP program and issue the seller a tax exemption certificate on your behalf.

What Is a Tax Exempt Certificate?

This document proves that you are a person or entity exempted from paying taxes during purchase. It lets you opt out of the sales taxation system. The main objective of this is to help businesses boost their income and encourage more business. 

Another benefit of a tax-exempt certificate is to give the marketplace seller convenience. If a buyer has an Amazon tax exempt account the seller is relieved of the obligation to collect and remit sales tax.

Does a Tax Exempt Certificate Expire?

Yes, it does. A tax exemption certificate can be good for at least five years in most states. Though some are only good for a year.

If you have an Amazon account for business-to-business (B2B) transactions, you'll have to watch out for when your tax-exempt certificate will expire. You don't want to be surprised with a high sales tax amount to pay because of a huge volume of purchases.

On the flip side, if you're an Amazon marketplace seller, you also may have to watch out for Amazon sales tax exemption certificates. If a customer claims they should be exempt and presents no certification, it may cause some trouble.

Do I Have to Worry About Covering My Customer's Sales Tax?

Yes, you do! Picking up from the last segment, you may have gotten exposure for an Amazon sales tax because there's a claim of exemption, but no tax exempt certificates are given.

The good news is that Amazon has a robust system for sales tax collection, especially if you're a marketplace seller. But ultimately, setting up and remitting the correct sales tax is the merchant's responsibility.

Professionals Can Help Clear Things Up With Sales Tax Exemptions

Tax exemptions go both ways. If you want to know how to add tax exemption to Amazon purchases as a merchant, you need to enroll for it, except if you're a reseller. On the other hand, your customer (business or individual) can also get tax exemption when they purchase a product you sell.On both occasions, you will need to consult with your accountant about handling tax exemption on Amazon. But if you want assistance setting up your Amazon sales tax collection, Unloop can help you out. Call us at 877-421-7270 for a consultation, or check out our ecommerce services now.

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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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