Guide to Sales Tax Collection in Amazon
Chapter 4: Setting Up Amazon Sales Tax Collection
Review Amazon Tax Calculation and Setup
To begin, Amazon asks sellers to complete the following four steps. It’s the fourth step where sellers define taxability rules. The first three steps are meant to get your account set up properly, review the manner in which Amazon collects sales tax, and review master product tax codes.
- Upgrade to a Professional Seller Account – If you haven’t already, you’ll need to upgrade your Amazon Seller account from Individual to Professional.
- Review Tax Calculation Methodology – This is recommended reading from Amazon. Whether you are new to sales tax or not, it doesn’t hurt to take a few minutes to further familiarize yourself with how Amazon collects sales tax. Within this document, Amazon offers details around the manner in which they determine sales tax and collect sales tax. Other topic covered include returns, sales tax on digital content, and exemptions.
- Review Master Product Tax Codes and Rules – Amazon Seller Central offers predefined tax codes for a wide variety of products categories including (but not limited to) books, apparel, computers, sporting goods, and food. Take the time to locate the type of product you intend to sell and review the taxability details. As an example lets consider candy.
Candy & Confectionery (A_FOOD_CNDY)
What is this code used for? This code is intended to be used for candy, candy coated items, and confectionery.
What kinds of products are typically included? Items typically within this tax product code are most candy types, including: candy bars (without flour), lollypops, taffy, and cotton candy; candy coated items including: candied fruit, candy coated popcorn and candy coated nuts. Additionally, baskets/containers that hold Candy (as listed above) where the non-food value is de minimus (e.g. 10% or less of the total value of the basket/container).
What kinds of products are typically excluded? Items typically excluded from this tax product code are included in other product tax codes. Those food product tax codes include items such as:
- Candy products containing flour.
- Fruit, potato chips, cup cakes, pies, nuts.
- All Candy baskets/containers other than that listed above.
Why should you take the time to review product tax codes and rules? You might not be aware of the fact that candy made with flour is excluded from this category as are candy baskets that have really nice baskets. Every product type has some sort of exception. Be sure you understand the taxability of the goods you are selling.
Setting Up Amazon Sales Tax Collection
Now that you’ve reviewed the manner in which Amazon collects sales tax, you are ready to set up your tax collection rules. To begin, scroll to the bottom of the page to where you can set up taxation rules for each tax jurisdiction as well as shipping & handling taxability and gift wrap taxability.
Step 1: Choose Product Tax Code: You have the following three options to consider, collecting no tax on any sales, collecting tax on every sale, and collecting tax on specific product sales. The table below shows these options along with the product tax code you’ll want to choose from the drop down menu. It should be noted that any offers you do not assign either a seller-defined default PTC or an offer level PTC, the Always Nontaxable PTC (A_GEN_NOTAX) will be used.
Tax Collection Setup
Product Tax Code to Select
|Do not collect sales tax on all sales||A_GEN_NOTAX|
|Collect sales tax on all sales||A_GEN_TAX|
|Collect sales tax on specific product types||Choose from the list of product tax codes found in the drop down menu|
Step 2: Define Tax Collection Obligations: If you have elected to collect sales tax, select the states for which you want the Amazon Tax Calculation Engine to calculate taxes by checking the appropriate checkboxes (State, County, City, and District).
Guidance: Should you choose to collect sales tax, it is always advisable to begin with your home state as this is the state in which you will definitely have nexus.
Step 3: Input State Registration Number: For each state you elect to collect sales tax in, you must input your state registration number.
Guidance: Registration takes place on Department of Revenue websites. We’ve created sales tax guides for every state that can help you through the registration process.
Step 4: Specify a Custom Tax Rate (OPTIONAL): Should you choose to, you can set a custom tax rate for any state. This rate will override the tax rate supplied to the Amazon Calculation Engine by Vertex.
Guidance: Generally speaking, this is not a high priority for those getting started as an Amazon Seller. However, as your business grows and your tax exposure becomes greater and possibly more complex, it is good to know you have the option of setting custom state sales tax rates.
Step 5: Choose Taxability on Shipping & Handling and Gift Wrap: Decide whether or not to collect sales tax on shipping & handling and gift wrap charges.
Guidance: Typically, we advise sellers to align their shipping & handling and gift wrap taxability with each state’s taxability. In other words, if you’re taxing goods sold into a state, you should also tax shippping & handling and gift wrap into that state (and vice versa).