5 things FBA sellers need to know about sales tax
- Sep 14, 2018 | Mike Plaster
Becoming an Amazon seller can give your business the reach you’ve never had before — easy access to customers in every state, and even different countries.
However, it can also create sales tax headaches you’ve never had before, especially if this is your first foray into online selling. All of a sudden, you could be responsible for complying with a maze of different tax laws in states, cities, and other tax jurisdictions.
That’s why it’s important to have a firm understanding of how Amazon sales can impact your tax obligations — and what you need to do in order to meet them.
Here are five things to know about sales tax when you’re selling on Amazon:
1. Depending on where, what, and how much you sell, you could have nexus in new places.
Nexus is the connection you have to a state, whether it’s based on physical presence or some other factor, such as how many transactions or how much revenue you have in a particular state (that’s called economic nexus, see our helpful tool for that here).
The main thing to remember is that because you’re selling on Amazon, you’re now reaching customers across the country — so you could have nexus in states across the country, too. You’ll need to check out state rules and regulations to determine this, or work with a tax professional who can provide expert advice. But if you have nexus in a state or tax jurisdiction, sales tax must be collected and remitted on taxable products you sell there. And that applies to all of your applicable sales, not just those on Amazon.
2. Even where Amazon stores your items can impact your sales tax obligations.
The Fulfilled by Amazon (FBA) program makes it possible to sell to customers everywhere, without even storing your own inventory — you just have it sent to Amazon and they keep it in one of their warehouses, sending out your products as orders come in. However, while some sellers consider this issue a gray area, many states maintain that keeping your inventory in an Amazon warehouse can create nexus in that state for you.
This is no small matter, because Amazon has warehouses in more than half of the states in the U.S. Where is your inventory stored? Does that mean you have nexus? Those are questions you’ll need to answer if you want to fully understand your tax obligations.
3. In some states, Amazon will automatically collect and remit sales tax for you.
In others, you have to tell them to collect (and you have to remit yourself). Amazon collects and remits sales tax on behalf of FBA sellers in several states — currently Oklahoma, Pennsylvania, and Washington — that have marketplace facilitator laws in effect. Basically, these laws require the company, as a large platform for third-party sellers, to handle some (but not all) of the sales tax obligations for those sellers. However, even if Amazon collects and remits, you’ll still need a sales tax permit or license in each state or jurisdiction, and you’ll still have to file returns.
Other states are considering similar laws; in Alabama and Minnesota, they’ve already passed and are slated to take effect next year. If you have nexus in a state that does not have a marketplace facilitator law, though, you’ll need to set up your Amazon account so your sales are taxed correctly. In those instances, Amazon will collect the sales tax, but they won’t remit it for you. (And, of course, permits, licenses, and filing are your responsibility.)
4. Ignoring sales tax might save you some frustration today, but create even bigger hassles tomorrow.
A lot of sellers — not just those who sell on Amazon, but other platforms as well — think they don’t need to worry about sales tax. We certainly aren’t recommending that sellers collect sales tax when they aren’t required to do so. (In fact, that’s illegal.)
But you should understand the risk you’re taking if a state or jurisdiction says you have nexus (or a reasonable interpretation of the law says you do) and you still don’t collect sales tax. Sure, maybe you’ll be lucky and fly under the radar for a while — but for how long? If and when the state finds out you aren’t meeting your obligations, you could face an unpleasant audit, bills for back taxes, even penalties. And nobody wants that.
5. There are resources available to help you manage all of this.
People start businesses for a wide variety of reasons — but a desire to deal with sales tax isn’t one of them. (Of course, Avalara is a rare exception to that rule.)
The good news is that you don’t have to handle sales tax compliance on your own; in fact, with Avalara, you barely have to worry about it at all. We designed TrustFile just for Amazon sellers like you. It integrates perfectly with the Amazon platform — and any others you use — so all of your data is right where you need it to prepare and file your sales tax returns. We even provide online filing capability and a detailed FBA Inventory Report.
We’re always monitoring changes to the tax landscape and finding ways to make things easier for you, too. Sales tax is our business — but our purpose is allowing you to focus on your business.