Fulfillment by Amazon (FBA) allows entrepreneurs to tap into Amazon’s logistics network and handle storage, packaging and shipping. For independent business owners, navigating FBA sellers tax can be a challenge. Varying state rates, different rules on taxable goods, and sales tax nexus all dictate how you collect sales tax.
Keep reading to understand key FBA sellers tax terms, how sales tax is calculated and how to stay compliant.
Jump ahead to learn:
In most cases, yes. As an Amazon seller, you must know when and how to collect sales tax. The process can be complex, as your tax obligations may vary depending on what you sell, where your business operates and where your customers are located.
Some items you sell may be subject to sales tax, while others may be exempt. Additionally, you need to account for district, city, county and state sales tax rates to determine a combined tax rate.
Fortunately, Amazon simplifies this process by automatically adding sales tax when a customer purchases a product. However, it’s still important to understand how sales tax is applied and when you may be exempt from collecting it.
Sales tax nexus is a legal term that refers to a significant business presence in a state, establishing a connection between your business and the state’s taxing jurisdiction. If your business has a nexus in a state, you must collect and remit sales tax there.
As an FBA seller, you may have a nexus in multiple states depending on various factors, such as:
Understanding sales tax nexus is crucial for your business. If you collect Amazon sales tax in a state where you’re not registered to do so, you could be engaging in illegal activity and face significant penalties if a state conducts a sales tax audit.
Different states charge sales tax rates according to various criteria. Most states are destination-based, but some are origin-based.
Here’s what that means:
As an FBA seller, your business may have a nexus in multiple states. To find out where your Amazon inventory is stored and where you might have established a nexus, follow these steps:
The spreadsheet will show the fulfillment centers where your Amazon FBA inventory is stored via a fulfillment center code. You can review the list of Amazon fulfillment centers to discover where you might have established nexus.
You’ll need a sales tax permit to start collecting sales tax on Amazon. After, you can set up sales tax collection through your Seller Central account.
Here’s how:
Each state has its own rules and application process for getting a sales tax permit. Visit the state’s tax authority website to learn the requirements and obtain the necessary forms.
Your Seller Central account is the hub for setting up Amazon’s tax calculation services. Once you log in:
Double check you have the correct registration numbers for each state to ensure compliance.
Amazon calculates, collects, reports and remits sales tax in states where the Marketplace Facilitator legislation is in place. This legislation simplifies the tax process for sellers by making Amazon responsible for collecting and paying the sales tax on your behalf.
To see the total sales tax Amazon collects:
Amazon will prompt you to choose the type of report you need. Once downloaded, navigate the report to find the information related to the total tax collected.
Some sellers don’t have to pay Amazon sales tax. You might be exempt if:
If any of those apply, you won’t have to collect and pay tax on Amazon sales.
NEXT helps Amazon sellers find the right business insurance coverage at an affordable price.
We help you meet Amazon’s insurance requirements if you have a Pro Merchant account or want coverage to protect your e-commerce business.
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Next Insurance does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for personalized guidance.
Amy Beardsley, insurance expert and contributing writer at NEXT Insurance, is a content marketing writer who specializes in small business coverage. Leveraging her background in the legal field, Amy brings a deep understanding of laws, regulations, and compliance requirements to her work. As a content marketing writer since 2016, she has contributed to publications like Legal & General, Berkshire Hathaway Specialty Insurance, Insurify, and NerdWallet. Her work has also appeared in CNBC, Kiplinger, and US News. When she’s not writing, Amy enjoys playing cards with her family and experimenting with new recipes.
