Sales tax is a fact of life for utmost retailers, whether you sell online, at a brick and mortar store, or all of the above.
Sales tax for Amazon FBA sellers is a bit more complex than it’s for most other retailers.
Are you selling on Amazon? This guide is for Amazon FBA sellers who want the scoop on collecting and filing sales tax.
When Does an Amazon FBA Seller Need to Collect Sales Tax?
For the purposes of sales tax, e-commerce sellers are treated just like all other online retailers.
As an FBA seller, you’re needed to collect sales tax in countries where your selling meets two criteria.
- Sales tax nexus
- Product taxability
Understanding both will help you determine when and if you’re needed to collect taxes from your Amazon FBA customers.
1. Sales tax nexus.
Sales tax nexus is just a fancy legalese way to say “ significant connection” to a state.
Still, also that state considers you on the hook for charging sales tax to buyers in the state If you have nexus in a state.
You’ll always have sales tax nexus in your home state, but you may find that certain business activities produce nexus in other states, too.
Ways to Have Sales Tax Nexus in the Different States
- A location is an office, warehouse, store, or other physical presence of a business.
- Personnel and employee, contractor, salesman, installer, or other person doing work for your business.
- Affiliates Someone who advertises your products in exchange for a cut of the gains creates nexus in many states.
- A dropshipping relationship If you have a 3rd party ship to your buyers, you may create nexus.
- Selling products at a trade show or other event Some states consider you to have nexus indeed if you only sell there temporarily.
- Inventory Most states consider storing inventory for sale in the state to cause nexus indeed if you have no other place of business or personnel.
- Economic nexus You exceed a state-commanded dollar amount of sales in a state, or you make over a certain state-mandated number of transactions in a state.
Inventory Nexus and Amazon FBA Sellers
That last point, storing inventory for sale in a state, is especially relevant to Amazon FBA sellers.
Most states’ sales tax laws say that this creates sales tax nexus. You can find links to each state’s sales tax nexus laws then.
It helps to suppose it from the state’s perspective.
From their point of view, any online seller who uses resources in their state ( roads for delivery, public safety should an emergency do, etc.) has nexus.
For this reason, FBA sellers may have sales tax nexus in a state simply from storing their FBA inventory in an Amazon fulfillment center.
Then’s a list of all states with an Amazon fulfillment center as of this writing.
2. Product taxability.
Once you’ve determined that you have nexus in a state, your next step is to determine if what you’re selling is taxable.
Generally, tangible personal property is taxable while services aren’t taxable. Of course, as with everything having to do with sales tax, individual states may make exceptions to these two general rules.
Some common product categories aren’t taxable or taxed else in some states. These categories include groceries, apparel, and textbooks.
For illustration, apparel and grocery items are both non-taxable in Minnesota. In Tennessee, grocery items are taxable but taxed at a reduced rate of 5.
Still, you can check with your state’s taxing authority online or by giving them a call If you have questions about whether or not the products you’re selling are taxable.
Keep in mind that most tangible goods are taxable in most states.
How to Get Sales Tax Compliant
Once you’ve determined that you have nexus in a state and are selling taxable items in a state, your next step is to register with that state to collect sales tax.
You can find guides on how to register for a sales tax permit with each state here.
It’s important to register before you begin collecting sales tax. States consider it illegal to collect sale tax without a permit, no matter if your intentions are pure.
Once you admit your permit, you’ll also be assigned a sales tax filing frequency and sales tax due dates.
Your filing frequency is generally monthly, quarterly, or annually and depends on your sales volume.
The more you sell in a state, the more often that state wants you to file a sales tax return.
still, your state may assign you a new filing frequency, If your sales dramatically increase or decrease as time goes by.
Always be on the lookout for letters or other communications from your state once you’re registered for a sales tax permit.
How to Collect Sales Tax on Amazon
Important to note Amazon now collects sales tax on the seller’s behalf in utmost states with an Amazon fulfillment center. The below information applies to states that don’t bear Amazon to collect sales tax on the seller’s behalf.
Now that you’re registered to collect, your next step is to ensure you’re collecting sales tax from your Amazon FBA customers.
Fortunately, Amazon has a really robust sales tax collection engine.
Once you tell it what you want to collect, it’ll collect at the right rate, even keeping up with complicated concepts like whether a state is “origin-based”.
It’ll also allow you to add “ product tax codes” so you charge the right amount of sales tax on items like groceries and apparel, and allow you to choose whether or not you charge sale tax on shipping and gift wrapping.
Keep in mind that Amazon charges2.9 of each transaction in order to collect sales tax.
The option, still, isn’t to collect sales tax from your Amazon customers and to rather payout of your earnings.
1. Setting up sales tax collection on Amazon.
- Log in to Seller Central
- Click “ Settings” also “ Tax Settings” from the dropdown menu
- Choose the option “ View/ Edit your Tax Collection and Shipping & Handling and Giftwrap Tax Scores Settings”
Then you can choose in which states you want to collect sales tax, as well as if you want to collect sales tax at the county and another local level. You can indeed enter a custom sales tax rate. We don’t recommend this because sales tax rates are subject to change constantly.
Note that you’ll need your state sale tax registry number before Amazon allows you to set up sales tax collection.
This is a safeguard to prevent sellers from intentionally (and unlawfully!) collecting sales tax without being registered with a state.
2. Setting up product tax codes on Amazon.
Once you’ve entered your sales tax settings, return to your Seller Central Tax Settings Page (Seller Central> Settings> Tax) and choose the option “ View-Master Product Tax Codes and Rules.”
From then, you can choose the product tax codes that most nearly fit your products. Then are some examples
- A_CLTH_GEN General clothing. Keep in mind that clothing is non-taxable in some states. But in many cases, accessories, formal wear, athletic wear, and other clothing types are still taxable. That’s where there are also separate product tax codes likeA_CLTH_HBAGS for handbags andA_CLTH_CSTUMS for costumes.
- A_FOOD_GEN Use this to label food items. Just like with apparel, not all food is taxed evenly, so there are also product tax codes for things likeA_FOOD_CNDY ( candy) andA_FOOD_SFTDK (carbonated soft drinks.)
still, that’s probably because it’s generally always taxed If you can’t find a product tax law for one of your products. You should just label that item with “A_GEN_TAX.” And if for some reason, you never want to charge sales tax on a particular item, you can also label it with “A_GEN_NOTAX.”