The Limits of Amazon Sales Tax Reporting
- July 31, 2015 | Laura McCamy
One of the biggest challenges for online sellers is sales tax compliance. Selling online can expand the number of jurisdictions where you need to collect and remit sales taxes. If you use FBA, you may have sales tax nexus (the obligation to collect and remit sales taxes) in places you aren’t aware of, due to the location of Amazon warehouses that store your products.
Sales tax reporting obligations often add unexpected complexity and headaches for ecommerce business owners. Amazon can help you out, but be aware of its service's limitations.
Amazon Sales Tax Services
Amazon offers a sales tax collection service to its Marketplace Professional and Webstore sellers. Amazon calculates the sales tax due on your sales based on information you provide about where you are obligated to collect and remit sales taxes.
While the platform will collect applicable sales taxes for you, you are still responsible for registering your business with the appropriate taxing authorities in the jurisdictions where you owe sales tax and remitting the taxes Amazon collects to those jurisdictions.
For Professional sellers, Amazon charges a fee of 2.9 percent of the sales taxes it collects through this service. If you run an Amazon webstore, your payment processing charges are calculated on your sales totals, including sales taxes, so Amazon effectively takes a percentage of the sales taxes collected in this case as well.
You may also set your own sales tax rates manually in Amazon. You can set different rates for sales shipped to different jurisdictions. If you have nexus in any states that base sales taxes on your customer’s location, called destination-based sales taxes, this may be a big chore.
You can find tax calculation and collection information as part of your Amazon seller reports, under the heading Tax Document Library.
If you use Amazon’s service, you are still responsible for understanding where you have sales tax nexus. In addition, it’s on you to track filing deadlines and remit your sales taxes on time.
You are also responsible for figuring out which of your products are taxable and which are not. You will need to provide Amazon with the SKUs of your taxable products, which can vary from jurisdiction to jurisdiction, particularly if you carry food products.
Managing Tax Exemption Certificates
If you sell to a mixture of wholesale and retail customers, the Amazon system has some limitations. It will only recognize customers’ tax exemption certificates if they are registered in the Amazon Tax-Exemption Program (ATEP). So you either have to convince your wholesale customers to sign up for ATEP or find a different sales tax solution.
Getting It Right
Amazon uses a vendor to provide the correct tax rates for its sales tax collection service. Some users complain that the third-party vendor has not always kept rates updated and that Amazon calculates tax on each item individually rather than the whole order, which can lead to rounding errors. In either case, this could mean money out of your pocket to cover sales taxes that you didn’t collect from your customers.
The bottom line is that Amazon sales tax reporting services only go so far and the services they do offer may have some drawbacks.
Rather than spending your time on the sales tax issues that come with selling on Amazon and using FBA, you might find that using a professional sales tax service makes compliance easier. Avalara TrustFile offers easy tax reporting services that seamlessly integrate with your Amazon sales data.