It can be hard to understand your sales tax obligations if you sell either exclusively on Amazon or through Amazon and your own website. In this article, our experts explain everything you need to know about sales tax as a marketplace seller, from when you need to register for a tax permit to whether you must collect and remit sales tax.
Does Amazon Collect State Sales Tax?
Yes, most states in the US have “Marketplace Facilitator” rules in place. Amazon is a marketplace facilitator, so it collects and remits sales tax based on each buyer’s location. For the majority – or potentially all – of your sales, Amazon will automatically collect and remit sales tax to the appropriate state tax authority.
This doesn’t mean that sellers using Amazon don’t have obligations. You still need to register for a sales tax permit in each state where you have nexus, and some states will expect reports of your sales and revenue.
Does Amazon Calculate Sales Tax?
Amazon is responsible for calculating the correct rate of sales tax based on each customer’s location. This may include state-wide and local taxes.
It’s on you to ensure you’ve added the correct product tax codes. These communicate to Amazon if any of your products are exempt from sales tax, so they don’t charge the customer. You can update these in “Tax Settings” in your Amazon Seller Central account.
Sales Tax on Amazon Sellers: A Summary
As a marketplace facilitator, Amazon manages transactions between buyers and sellers. It also handles the collection and remittance of sales tax in states with marketplace facilitator sales tax laws in action.
Sellers still need to complete certain actions:
- Check where you have physical or economic nexus
- Register for a sales tax permit in these states
- Report your sales to each tax authority
- Check whether you need to collect sales tax in any locations
Exceptions to Marketplace Facilitator Laws
Some states allow local governments (cities or counties) to create and enforce their own laws and regulations around sales tax. These local jurisdictions might not require Amazon to collect and remit the consumption tax on your sales. That means if you have nexus in the state, you are responsible for collecting sales tax from customers in these specific localities.
How do you know when you need to collect sales tax? We recommend speaking to a tax manager.
How Much is Amazon Sales Tax?
Whether you’re a seller or a buyer, you might wonder how Amazon calculates sales tax. It’s based on the state and local tax rates where each customer lives, factoring in any exemptions. This tax rate will be automatically applied to purchases, but the rate is “estimated” until the order is finalized.
Learn How to File Amazon Taxes
As a marketplace seller, you must check the reporting and filing requirements in each state where you have nexus. Even if you’re not collecting sales tax from customers, you may need to submit a report to the local tax authority.
You’ll also need to include Amazon sales on your income tax return or gross receipts tax form. Amazon Payments will issue a Form 1099-K if your payments surpass $20,000 from 200 or more transactions.
Advice for Omnichannel Sellers
Many businesses sell both via marketplaces (including Amazon, eBay, Wayfair, etc.) and directly. This can make things more complicated when it comes to sales tax. In some states, your marketplace sales count towards the nexus threshold and can put you on the line for collecting sales tax on your direct sales, even if these alone wouldn’t meet the requirements for economic nexus.
Using automated sales tax software makes the process much easier. Find a tool that will integrate with Amazon as well as your own eCommerce platform and deliver accurate calculations for your marketplace and direct sales.
“Many businesses who sell on marketplaces make the mistake of thinking that they can just ignore sales tax. You do still have certain obligations so it’s important to stay informed and keep detailed records.” – Gareth Kobrin, Global Tax Expert
Automate Your Amazon Sales Tax Compliance
Many businesses that sell on marketplaces use automated sales tax software to ensure compliance. Whether you sell on one marketplace, a handful or through your own website as well, an automated solution keeps things simple and takes the pressure off your team.
Yonda Tax is a solution combining sales tax software with a dedicated sales tax wingman. This combination of technology and human expertise ensures you stay compliant – from nexus monitoring and sales tax registration to calculations and reporting. Oh, and you can integrate Yonda with your Amazon account in seconds.
Conclusion
Amazon is a marketplace facilitator and handles the collection and remittance of sales tax for sellers. However, there may be exemptions in certain locations and your marketplace sales can have an effect on sales tax when it comes to sales from your own website. You also need to register for a sales tax permit if you have nexus in a state, even if you only operate via marketplaces.
It’s important to stay informed to avoid penalties, but if you keep thorough records and communicate with tax experts, you can’t go too far wrong.
Ready to automate the whole process? Book a free consultation with one of our experts! We’ll help you understand your obligations and get set up for total compliance.
The information in this article is true to the best of our knowledge at the time of writing, but sales tax regulations can change very quickly. You should always consult a tax professional for legal advice.