How Does Sales Tax Work on Amazon?
- March 9, 2015 | Ryan O'Donnell
If you're just getting started as an Amazon Seller, you are likely to have loads of questions. Inevitably, one of them will focus on how to set up sales tax for your Amazon sales. For a more in-depth analysis of setting up your Amazon Seller Central account to collect sales tax, refer to our Amazon Sellers Guide to Sales Tax.
If you follow Amazon in the news, you know sales tax collection has become the default action in two dozen states (Arizona, California, Connecticut, Florida, Georgia, Indiana, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, North Carolina, North Dakota, Pennsylvania, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin). However, you might wonder how to handle sales tax in any state not on the list.
In this post, we'll cover the basics of how to think about sales tax when you're selling goods on Amazon.
The first step in understanding how sales tax works on Amazon is to consider whether you need to collect sales tax at all. Chances are you probably do on at least some of your sales. The key to understanding which sales are taxable is understanding nexus. Nexus is defined as a sufficient physical presence within a state and it grants the state taxing authority the right to require you to collect and remit sales tax on the sale of taxable goods.
Examples of business situations that lead to nexus include (but are not limited to):
- an office in a state
- a warehouse in a state
- products stored in a state
- employees in a state
For many Amazon sellers (especially small businesses), nexus is limited to the state in which your business is located. Such Amazon accounts must be set up to collect sales tax on all taxable sales within that state.
For other Amazon sellers who utilize Fulfillment by Amazon (FBA), nexus is expanded to include all states in which products are stored. Again, Amazon accounts must be set up to collect sales tax on all taxable sales within these states.
Determining Sales Tax
Once an Amazon seller has turned on sales tax collection within a state, Amazon will collect sales tax which is calculated on the total selling price of each individual item. The total selling price typically includes:
- item-level shipping and handling charges
- item-level discounts
- gift-wrap charges
- order-level shipping and handling charges
- order-level discounts.
Whether sales tax is charged and how much depends on a number of factors including:
- the identity of the seller
- the type of item purchased
- the destination of the shipment
Amazon makes it a point to stress the rapidly changing landscape of tax rates and rules noting that changes can and may take place between the time an order is placed and the time a credit card payment receives confirmed authorization. In such a situation, the amount of sales tax appearing on an Amazon order may differ from the amount of sales taxes charged.
Finally, sales tax collection on Amazon is placed firmly in the hands of the seller. Whether or not sales tax is collected is determined not by Amazon, but by seller-determined collection settings a seller can access and control from their Seller Central dashboard.