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Sales Tax 101 for New Fulfillment by Amazon Sellers

  • Jul 5, 2016 | Gene Marks

If you’re just starting out as a Fulfillment by Amazon (FBA) seller, the amount of information you need to digest could be overwhelming.

To build a solid business, you have to make sure all boxes are ticked and you don’t miss any details.

Soon enough you'll figure out that one of the biggest elephants in the FBA room is sales taxes. It's a tricky subject, and with resources are scattered all over the Web, it can be tough to pin down what you need to know when it comes to FBA and sales taxes.

This article will help answer your questions and direct you to helpful resources that cut to the chase.

What Is Sales Tax?

Sales taxes are taxes levied by the US government on sales of goods and services.

By law in most states, the buyer is required to pay sales taxes but it’s the seller’s duty to collect the money, usually at the point of sale.

Each state has its own rules regarding sales taxes. All but five states impose sales taxes: Delaware, New Hampshire, OregonMontana, and Alaska. (Alaska has no state sales tax but have localities that impose their own taxes.)

Should I Charge Taxes in FBA?

As FBA grew rapidly, Amazon had to open warehouses in various states. This impacted where sellers have nexus and the way FBA sales are taxed.

Whether you should charge sales taxes or not is dependent on the states you have nexus in, which depends in part on where Amazon is storing your inventory.

Wait, What’s Nexus?

Nexus is defined as a business's physical connection or presence within a state. It is the main consideration when determining where a seller or a business owner should be collecting sales taxes.

FBA sellers have nexus in the state where they operate. They also have nexus in states where they maintain other business activities, such as an office, an employee, or a warehouse.

Refer to our state sales tax guides to check the criteria for determining whether you have nexus in a state or not. When in doubt, call the state department of revenue to review your situation.

Does FBA Give Me Nexus?

It turns out that in many states simply having products stored in someone else's warehouse is also enough to create nexus. You likely have nexus in each state in which you have inventory stored with FBA. This means you could be required to collect, file, and remit sales taxes for sales in several states at once.

Unfortunately, Amazon moves inventory around frequently, often without notifying its owner. So unless you conscientiously track your stuff, you may have nexus in a state and not even know it. Keep tabs on your items using regular inventory reports, and always register immediately in any new states in which you've acquired nexus.

How Do I Collect Taxes on Amazon?

If you’ve determined the states in which you have nexus, apply for a sales tax permit from the DoR of each state by registering in person or online. You must register in every state in which you have nexus. Once your application is approved, you may collect sales taxes through Amazon at the rate each state has set.

To set up sales tax collection on Amazon, first go to Seller Central and select "Tax Settings." Next, choose the states where you’re registered to collect taxes. Add product tax codes in this section. Choose the appropriate code from the drop-down menu. If the product category isn’t there, choose A_GEN_TAX.

How Do I File?

When you apply for sales tax permits, the state DoR will give you important information like state-particular sales tax deadlines and requirements.

For each state in which you have nexus, you’re required to file the sales tax forms and remit the taxes within the deadlines. Depending on the state, you may have to file and remit quarterly, monthly, or annually.

For sellers that have nexus in several states, it could be a pain to stay on top of all the forms and schedules. But as you know, it’s always best to be on the good side of the IRS. Failure to collect, file, and remit sales taxes on time for all states you are required to can be costly and make you open to audits.

Fortunately, signing up with tools like TrustFile will help you automate filing sales taxes. There is also the TaxRates Sales Tax calculator that pools sales tax information for states in one website so you won’t have to scour the web for information you need.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
It's Gene!
Avalara Author
Gene Marks
It's Gene!
Avalara Author Gene Marks
Gene Marks is a columnist, book author, CPA, and owner of Marks Group PC, a technology and consulting services firm. Gene writes every day on business, politics, and public policy for the Washington Post and weekly for Forbes, Inc. Magazine, Entrepreneur, and the Huffington Post.