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Sales tax is an inevitable part of selling for vendors both online and offline. The Amazon FBA taxes for Amazon FBA sellers are more complex than the typical sales taxes for most other retailers.
This guide offers relevant information on collecting and filing FBA sales tax for Amazon FBA sellers and any other person interested in the process. Always remember that you can get critical data from the Amazon FBA calculator by IO Scout.
In the US, sales tax is a tax charged on items that are considered to be non-essential. Also, there are state-to-state variations with respect to sales tax. This tends to make keeping track of FBA sales tax difficult for Amazon sellers selling in multiple states.
When it comes to sales tax, e-commerce sellers are categorized as online retailers. As an Amazon FBA seller, you're required to collect sales taxes in states where your sales meet two requirements:
A proper grasp of both will help you resolve if and when you're required to collect any taxes from your Amazon customers.
As with every other thing in the United States, every state has its definition of what a sales tax nexus denotes. However, the generally accepted explanation for a sales tax nexus is the area where a business has a physical presence.
Assuming you have an office in California, however some of your stock is located in Oklahoma, your sales tax nexus is both Oklahoma and California. Therefore, you'd collect sales taxes in both states.
Once you've ascertained that your business has nexus in a specific state, the next step will be to verify whether what you're selling is taxable.
Conventionally, tangible personal properties are taxable while services aren't taxable. However, just like everything associated with sales tax, different states may make certain exceptions to these general rules.
Some product categories aren't taxable or taxed individually in some states. These product categories include clothing, groceries, and textbooks.
If you've any questions concerning your product's taxability, contact or check with the taxing authority in your state. However, just remember that majority of tangible products are taxable in most states.
If you're operating as a business in a state, you're required to file Schedule C , otherwise referred to as form 1040. If you're doing this but don't want to recruit an accountant, it is strongly recommended that you utilize a bookkeeping software such as Intuit Quickbooks. It helps you track all your annual expenses.
If you are an active Amazon seller and you reach the 1099-K qualification requirements, chances are that Amazon has already emailed you. However, if Amazon hasn't emailed you about your 1099-K yet, you can search for the form by using these simple steps:
Even the multi-billion-dollar e-commerce giant, Amazon, occasionally makes mistakes. If your 1099-K form wasn't issued by Amazon, contact Seller Support.
If you notice some mistakes on your tax form, there's no need to worry as it can be rectified. The first step is to ensure you are reporting the unadjusted overall gross sales for the year. These are based on the goods' shipping date rather than its sale date.
The next step is to print a date range report by following these directives below:
The 1099-K form is a sales report sheet published by Amazon and other identical businesses. The 1099-K form from Amazon gives the IRS information regarding monthly and annual gross sales and includes Amazon FBA tax, FBA sales tax, and shipping fees.
If you have an individual seller account, don't worry, you need not fill out this form. Amazon handles it for you. Amazon also sends the document to both you and the IRS, provided you meet the qualification requirements.
Not all Amazon online seller receives a 1099-K form from Amazon. To reach the 1099-K qualification requirements, you must have both 200 individual transactions and $20,000 in gross sales.
However, if you reach at least 50 transactions, you're required to send your tax status to Amazon. You risk losing your seller credentials on the Amazon platform if you default on this. Your tax information can be provided for Amazon through your Seller Central account (tax information).
A deductible is used to reference any business expense that you could write off. By deducting such expenses from your adjusted gross income, you're helping to reduce the tax amounts that you might have to pay. A deductible can save you some cash on both your personal and business taxes.
Below is a list of some of the costs that you can set aside as deductibles for your Amazon business:
Once you have ascertained that you have sales nexus in a particular state and you're selling taxable products in that state, your next step will be registering with that state to ensure your eligibility to collect sales tax. Check with your state's sales tax authority for further directives.
It's essential to obtain a permit before you begin to collect sales tax. States deem it illegal and criminal to collect sale tax without registering for a permit, regardless of the transparency of your intentions.
Once you've obtained your permit, you'll be given a sales tax filing frequency and sales tax due dates.
The filing frequency is usually annually, quarterly, or monthly depending on your sales volume.
The more sales you make in a state, the more frequently that state would require you to file a sales tax income.
If your sales considerably decrease or increase with time, your state may allow you a fresh filing frequency. Once you have registered for a sales tax permit, always be alert to any letters or other forms of communication from your state.
Important notice: Amazon now collects FBA sales tax on behalf of the Amazon sellers in the majority of states with an Amazon fulfillment center. The information below is only applicable to states that don't require Amazon to collect FBA sales tax on behalf of the Amazon sellers.
Now that you're registered to collect sales taxes, the next step is to make sure you're collecting Amazon FBA taxes from your Amazon FBA customers.
Luckily, Amazon has a very strong Amazon FBA sales tax collection engine. Once you input what you want to collect, the collection engine will collect the accurate rate and even keep up with complex theories like whether a state is "destination-based" or "origin-based" or if the sales tax rate has changed.
The Amazon FBA sales tax collection engine also allows you to include "product tax codes." This enables you to charge the appropriate amount of sales tax on products like clothing and groceries and allows you to select whether or not to charge sale tax on gift wrapping and shipping.
Always remember that Amazon charges you 2.9% of every transaction to collect Amazon FBA taxes.
The other option is not to collect FBA sales tax from your Amazon FBA customers and instead pay from your profits.
Below is how to set up sales tax collection in your Seller Central account:
In this window, you can pick which states you'd want to collect the sales tax. You can also choose which county or other local levels you want to collect the sales tax. You can even input a custom sales tax rate. However, this is not recommended as sales tax rates are often subject to change.
Note that before you're allowed to set up sales tax collection on the Amazon platform, you're required to provide your state sale tax registration number.
This is a precaution to prevent sellers from collecting sales tax without a prior permit from their state.
Once you have entered your sales tax settings, go back to your Tax Settings and select the option "View-Master Product Tax Codes and Rules."
Now you can select the product tax codes that are most closely related to your products. Below are some examples:
If you're unable to find a product tax code for an item, that's because it's generally always taxed. You should label such an item with "A_GEN_TAX." If you wouldn't want to collect sales tax on a specific product, you can label it with "A_GEN_NOTAX."
You've set up and started collecting Amazon FBA taxes. Soon, a sales tax filing due date will come around. Now you're required to report how much sales tax that you have collected in individual states and thus file your sales tax income.
Most states want a report of not just how much sales tax you have collected in the state, but also how much you've collected in each city, county, and other specific taxing regions within the state. You can obtain this data in two ways:
Once you have reported how much Amazon FBA sales tax you've collected in a state, it is time to file your Amazon FBA sales tax income and submit your collected sales tax.
Filing of Amazon FBA tax returns can be done in a few ways, including:
Login to the website of the taxing authority of your state and submit a sales tax return. You can then proceed to make payment via the state's payment gateway.
You can automatically file your FBA sales tax return by using a sales tax automation software. The solution will automatically pay the state what you owe at due dates.
Finally, here are some vital pieces of information to keep in mind when filing your Amazon sales tax returns:
This process can become trickier and tedious if you have a non-marketplace sale (which was collected by you) and marketplace sales (which was collected by the marketplace) to report. Ensure that you report all sales to prevent inconsistencies in your remitted return and questions from your state's revenue department.
Take advantage of the discounts: Over 59% states in the US with a sales tax permit online sellers to retain a small percentage (between 1-3%) of the collected sales tax as a monetary "thank you" for their effort collecting, filing, and remitting the tax.
Hopefully, this blog has helped shed some light on the essential things you need to understand to file Amazon FBA taxes correctly for your Amazon FBA business. Therefore, good luck and happy selling!
Due to the Internal Revenue Service (IRS) guidelines and regulations, all US third-party settlement corporations and payment processors, Amazon inclusive, are mandated to file 1099-K form for the United States taxpayer sellers who reach the thresholds of over 200 transactions and over $20,000 in unadjusted gross sales in a calendar year.
If you don't reach the qualification requirement, you'll not receive an IRS 1099-K Form.
Under Section 6050W of the IRC guidelines, PayPal is mandated to report to the Internal Revenue Service (IRS) the overall payment volume received by account holders in the US whose payments surpass both of these following levels in one calendar year:
The IRC Section 6050W is applicable to all payment processors, including PayPal.