How Do You Handle Sales Tax Compliance for your Amazon FBA Business?

The Fulfillment by Amazon program (FBA) makes it incredibly easy to sell products on Amazon. Amazon practically does all of the hard work by packing and shipping your products, and you just have to handle the business side of things.

That being said, beyond the tedious repricing and day-to-day store management, the business side of things can get complicated fast when it comes to taxes.

 

 

Sales tax compliance is incredibly confusing for new sellers, and if you don't know what you're doing and fail to remain compliant, you could expect a visit from the tax man.

Don’t fear!

In this post, we’ll cover the basics of sales tax compliance as an Amazon seller along with the steps you must take as a seller to remain compliant with your state’s tax code.

Sales Tax 101

Sales taxes are currently required in 45 states and the District of Columbia. It is considered a “pass-through tax” meaning that the seller will only collect and hold the taxes for a set time before they must be remitted to the state and local tax authorities. Typically, the time frame is either monthly, quarterly, or annually depending on the state.

Each state will have different rules when it comes to the amount of sales tax charged, so you’ll have to check with your state’s designated tax office to make sure you know all of the rules. For example, some states will require that you collect sales tax on shipping charges and others won’t.

Where Do You Have Sales Tax Nexus?

Whenever you have “sales tax nexus” it basically means that you have a significant connection with the state. This means that you will be on the hook for charging and collecting sales tax from buyers within that state.

Of course, you have sales tax nexus in your home state, but as an FBA seller, you also have nexus in a few other locations. Here are a few of the ways that you could have nexus in different parts of the country:

  • Having a physical location like an office, store, warehouse, or any other physical place of business.
  • Storing your inventory for sale in a state typically causes nexus even if you don’t have a physical place or business there.
  • If you are involved in a drop shipping relationship, you may create a nexus when the 3rd party ships to buyers.
  • You will create a nexus if you have an employee, salesperson, or another person doing work for you in the state.
  • Whenever someone is an affiliate for your business, many states will consider this a nexus.

The most significant point from the list above that should sound alarms in your head is related to inventory. Amazon has warehouses located around the country to make delivery quicker for customers. Your products could potentially be stored in many different states depending on your inventory size, so this point is especially important.

So, What Should You Do?

To determine where you have nexus based only on Amazon's warehouses, you can easily view your Inventory Event Detail Report on Amazon Seller Central to see precisely where your inventory is stored. Once you have a list of the states, you must take steps to collect sales tax from customers in those states.

The first and most important thing that you need to do is obtain a sales tax permit. Some states will refer to this as a sales tax license, but you must have one for every state you have nexus. Yes, that means each of the states where Amazon stores your inventory as well.

Depending on the state, their sales tax rate might be origin-based or destination-based. Here are the differences between the two:

If you are located (whether it is your office, warehouse, or inventory storage) in an origin-based sales tax state, you simply charge the same state and local sales tax to every buyer regardless of their own location.  

On the other hand, if the state has a destination-based sales tax, you would need to calculate the sales tax rate applicable to your buyer's location. This system is a little trickier, and you could end up charging multiple sales tax rates within a single state.

Paying Up

Once you collect the sales tax and everything is squared away, you’ll need to pay or “remit” the sales tax to your nexus states. Every state will have different payment periods so make sure to check online to ensure you aren’t late on your payments.

Work Smarter Not Harder

Those are the basics of sales tax for FBA sellers. It can seem like a complicated process, but luckily there are plenty of web tools you can use through Amazon to help make the process easy and automated. Just make sure that you stay on top of sales taxes and you shouldn't have any problems.

>>Interested in learning the ins and outs of running a successful Amazon business?<<

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Sales Tax 101

Sales taxes are currently required in 45 states and the District of Columbia. It is considered a “pass-through tax” meaning that the seller will only collect and hold the taxes for a set time before they must be remitted to the state and local tax authorities. Typically, the time frame is either monthly, quarterly, or annually depending on the state.

Each state will have different rules when it comes to the amount of sales tax charged, so you’ll have to check with your state’s designated tax office to make sure you know all of the rules. For example, some states will require that you collect sales tax on shipping charges and others won’t.

By | 2018-05-08T18:42:07+00:00 May 8th, 2018|Categories: General|0 Comments