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.
What is Amazon FBA Sales Tax?
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:
- Sales tax nexus
- Product taxability
A proper grasp of both will help you resolve if and when you're required to collect any taxes from your Amazon customers.
Sales Tax Nexus
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.
How to Have Sales Tax Nexus in Multiple States
- A location: a physical business presence, including an office, store, warehouse, etc.
- Personnel: a salesperson, employee, contractor, installer, or other individuals executing jobs for your business.
- Affiliates: Somebody who advertises and promotes your products in exchange for a commission from the profits generates nexus in multiple states.
- A dropshipping partnership: If your business has a third-party ship to your customers, you may generate nexus.
- Selling your wares at trade shows or other commerce events: Some states acknowledge your sales tax nexus even if your sales there are only temporary.
- Inventory: Most states recognize nexus for storing inventory for sale within the state, even though you have no other business presence (location or personnel).
- Economic nexus: a state acknowledges nexus when you surpass a state-required dollar amount of sales or make more than a specific state-required number of transactions.
Product Taxability
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.
File a Schedule C (Form 1040)
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.
Where Can I Find My 1099-K Form?
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:
- Log in to your Amazon FBA Seller account .
- Click on the "Reports menu."
- Select "Tax Document library."
- Download/print your annual 1099-K form.
What to Do If Your 1099-K Form Is Inaccurate or Not Issued
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:
- Locate and click on the "Reports Menu" on Seller Central
- Click "Date Range Reports"
- Select "Generate a Statement." A pop-up will show. Do the following:
- Choose report type: "Summary."
- Choose reporting range: "Monthly" or "Custom" then input the specific date information
- Click on "Generate"
- The report takes approximately one hour to generate. Review the report on the Date Range Report list.
- Calculate your adjusted gross sales. This is done by the addition of the amounts listed in the report column.
1099-K form
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).
What's A Deductible? List Deductibles
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.
What's Deductible?
Below is a list of some of the costs that you can set aside as deductibles for your Amazon business:
- The cost of goods (including the cost of manufacturing, wholesale price, etc.)
- Amazon fees
- Shipping expenses, including fees and supplies
- Mileage
- Home office costs (including office supplies, furniture, electronics, etc.)
- Donations
- Education relating to e-commerce and online business
- Subscriptions
- Online advertising (including business cards, ads, print materials, etc.)
- Consultant fees (e.g., lawyer, accountant, copywriter, web designer, etc.)
- Employee salary and benefits
How to Get Sales Tax Compliant?
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.
How to Collect Sales Tax on Amazon?
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.
Setting up FBA sales tax collection on the Amazon FBA platform
Below is how to set up sales tax collection in your Seller Central account:
- Log in to Seller Central
- Select "Settings," then choose "Tax Settings."
- Select "View/Edit your Tax Collection and Shipping & Handling and Giftwrap Tax Obligations Settings"
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.
How To Set Up Product Tax Codes On The Amazon FBA Platform?
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:
- A_CLTH_GEN: This labels general clothing. Remember that clothing is among the non-taxable items in some states. However, in many states, formal wear, accessories, athletic wear, etc. are still taxable. That is where you see separate product tax codes, including A_CLTH_HBAGS labeling handbags and A_CLTH_CSTUMS labeling costumes.
- A_FOOD_GEN: This labels food items. Like clothing, not every food item is taxed equally, so there are also product tax codes for food items like A_FOOD_CNDY labeling candy and A_FOOD_SFTDK labeling carbonated soft drinks.
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."
How to Report and File Amazon FBA Sales Tax?
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.
Reporting collected Amazon FBA sales tax
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:
- Downloading a report form from Amazon: Login to your Seller Central account, click "Reports"> "Payments"> "Generate Date Range Report." Select the filing period. With the document, you can attempt to dissect your data to work out how much sales tax you've collected in each city, county, state, and other specific jurisdiction
- Using sales tax automation solution: This produces a report for you. A sales tax automation software integrates not just with Amazon but also with all of your marketplaces and shopping carts to generate a comprehensive sales tax report. It will also categorize how much sales tax you have collected in the different taxing jurisdictions. This means you spend less time with maps and tax tables.
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 Amazon FBA Sales Tax Income
Filing of Amazon FBA tax returns can be done in a few ways, including:
Online
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.
Automated filing through sales tax software
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:
- File your sales tax returns in the states where you have obtained an active sales tax permit regardless of whether Amazon collects sales taxes on your behalf. Even though Amazon collects sales tax from your customers on your behalf, most states still request that any individual with an active sales tax permit would file sales tax, indicating what the Amazon remitted on your behalf.
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.
- Always file "zero sale tax returns": Ensure you file your sales tax return even though you collected no sales tax over the taxable duration. States request that you file by the deadline, and some states will even impose a fine if you do not file. Failure to file for several consecutive periods may even result in automatic cancellation of your sales tax permit.
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.
Final Thoughts
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!
FAQs
Does Amazon report to IRS?
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.
Does PayPal report income to IRS?
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:
- 200 individual payments for products or services within the same year.
- US$20,000 in gross payment volume from sales of products or services within a single year.
The IRC Section 6050W is applicable to all payment processors, including PayPal.
