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.
Amazon is a great destination for buying almost anything in just a click, but how does taxation work on Amazon? Is there a sales tax on Amazon purchases?
The giant e-commerce channel collects sales taxes only in certain states and cities. But as Amazon's physical presence grows, it will have no choice but to collect more state and local taxes.
This article will outline the basic things you need to know about Amazon's sales tax collection, from sales tax online services to tax calculation and more. Let's start!
What are sales taxes?
Sales tax is a kind of consumption tax. Consumption tax is a tax levied on goods and services, and it’s calculated by adding together all of the resources used in creating a product or service.
Unless you live in states or provinces that don’t charge sales tax, a purchase will be subject to two kinds of sales tax: the state or federal tax rate and the local tax rate of the area to which it was sent.
In Canada, for example, the federal sales tax is called the Goods and Services Tax (GST). In British Columbia, Manitoba, Saskatchewan, and Quebec, you need to collect the 5% GST plus their respective provincial sales tax (PST) rate.
Canada also has the Harmonized Sales Tax (HST). It is a sales tax levied in the remaining parts of Canada. As the name implies, it “harmonizes” or combines GST and PST, although the HST rate still varies per province.
Which Amazon products are taxable?
Most products are taxable, and if you sell a taxable item, you must charge your customers sales tax. If you do business in several jurisdictions or sell items online, you have to charge different sales tax rates depending on the state. First, however, you have to establish a sales tax nexus.
A sales tax nexus means your business has a “presence” in a particular jurisdiction. This presence subjects your business to the prevailing income and sales tax rules within that state.
For instance, if you sell products that need to be stored or shipped to a particular state, you establish a nexus in that area and thus have to collect sales tax.
Another way to establish a sales tax nexus is through intercompany transactions. For example, if you sell goods used by another company and delivered on behalf of its customers, you may be required to file taxes in that company’s jurisdiction.
On the other hand, if you sell digital goods like music downloads, software subscriptions, or other intangible property, you don't need to report these transactions because they do not require storage space and physical delivery.
What is the tax on Amazon purchases?
The sales tax on physical products purchased on Amazon can range from 17 to 27%, depending on the buyer's country of location.
As a seller, you may or may not be responsible for collecting sales taxes. That will depend on whether or not Amazon has jurisdiction to collect them in a particular state or province. As a result, you might have to do it yourself in certain areas.
In California, for example, Amazon has the jurisdiction to collect and remit sales taxes. In other places, however, they do not have that obligation.
If Amazon can collect and remit taxes for you, you no longer have to worry. Amazon has set up systems through which you can collect sales taxes from each order. On the other hand, if you’re on your own, you may need to hire a tax support service to automate this for you.
How to generate an Amazon Sales Tax Report for purchases?
Amazon sales tax reports are useful in helping sellers make sales tax decisions. If you are wondering where you can get such reports, you can do it through Amazon Seller Central Account Settings.
To download any Amazon Sales Tax Report, log in to Amazon Seller Central and navigate to Reports. Then, click Tax Documentary Library, where you can see the sales tax report.
Next, you should generate a tax report by selecting a report type. You can generate two types of sales tax reports on Amazon: the Sales Tax Calculation Report and the Marketplace Tax Collection Report.
The Sales Tax Calculation Report is useful if it’s your duty to collect and remit sales tax, as well as any associated sales tax liabilities.
On the other hand, the Marketplace Tax Collection Report documents sales tax collected and remitted by Amazon on behalf of sellers.
When you have selected a report type, a pop-up window will appear where you can customize the time range for the data you want to see in your report.
Manage your sales tax with Unloop
The Amazon sales tax report for purchases is a great way to help you handle your tax obligations. If you are responsible for collecting sales taxes on your own, then you should generate this report.
Still confused about sales taxes? Outsourcing tax support may help to simplify running your ecommerce business.
Whatever ecommerce platform you use, adopting industry-specific tax and accounting methods is critical to achieving your business objectives. With the right accounting service, you can grasp these numbers and make more informed business decisions.
We at Unloop can be your partner as you grow your ecommerce business. Our team of experts can provide you with a wide range of services, from accounting to automating your sales tax collection and other important financial tasks.
Call us at 877-421-7270, and we'll help you get started.