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Amazon FBA is a terrific way to sell online. It automates almost everything for you, right down to collecting the right amount of sales tax from your customers. But for U.S. sellers, what to do with sales tax beyond collecting it from your Amazon customers can be a bit of a mystery.
This post will help you ensure you’re collecting the right amount of sales tax from the right customers, and then demystify what to do with that sales tax once it’s been collected.
From Which Customers Should You Collect Sales Tax?
Forty-five U.S. states and Washington D.C. all have a sales tax. States use the funds they collect from sales tax to pay for budget items like roads and schools.
As a retailer, you are required to collect sales tax from your buyers in any states where you have sales tax nexus. Sales tax nexus is just a fancy legalese way to say “significant connection” to a state. If you have nexus in a state, then that state considers you on the hook for charging sales tax to buyers in the state.
You’ll always have sales tax nexus in your home state, but you may find that certain business activities create nexus in other states, too. They include:
• A location – an office, warehouse, store, or other physical place of business
• Personnel – an employee, contractor, salesperson, installer or other person doing work for your business
• Inventory – Most states consider storing inventory in the state to cause nexus even if you have no other place of business or personnel. This is where many Amazon FBA sellers find themselves with sales tax nexus in other states.
• Affiliates – Someone who advertises your products in exchange for a cut of the profits creates nexus in many states
• Drop shipping – If you have a 3rd party ship to your buyers, you may create nexus
• Selling products at a tradeshow or other event – Some states consider you to have nexus even if you only sell there temporarily
To help you determine whether or not your business activities give you sales tax nexus, you can find out what every state’s laws have to say about nexus here.
Once you’ve determined you have sales tax nexus in a state, then your next step is to…
Register for a Sales Tax Permit
Before you begin collecting sales tax, you are required to register for a sale tax permit. You can find instructions on how to register for a sales tax permit in each state here.
Don’t forget to do this! Most states consider it illegal to collect sales tax without a permit.
Once you receive your permit, your state will also instruct you on how often they want you to file a sales tax return. This will usually be either monthly, quarterly or annually. How often you file a sales tax return generally depends on your sales volume. The more revenue you make in a state, the more often you file sales tax returns in that state.
Collect Sales Tax
Once you have your sales tax permit, your next step is to begin collecting sales tax from your Amazon buyers.
This video will walk you through setting up U.S. sales tax collection through Amazon Seller Central:
Keep in mind that if you have sales tax nexus in a state, you are required to collect sales tax from all of your buyers on that state. So if you sell on multiple platforms, like Amazon, eBay and Shopify, be sure to set up sales tax collection on all of those sales channels.
Report How Much Sales Tax You’ve Collected from Buyers
Soon enough, your sales tax filing due date will come around. When it does, it’s time to report how much sales tax you’ve collected from buyers in each state.
This would be simple enough if you only had to determine how much sales tax you’ve collected in a state, but most states want you to break down that amount not just by state, but by county, city and other special taxing district. States can have hundreds of taxing jurisdictions, so this can get time-consuming quickly.
That’s why you should use a sales tax automation solution to report and file your sales tax. A solution like TaxJar will connect with all of the shopping carts and marketplaces you sell on, and break down how much sales tax you’ve collected by state, county, city and other special taxing district just the way the state wants to see it. You can even AutoFile your sales tax returns so you never have to deal with another state website or clunky payment portal!
File Your Sales Tax Returns
Once you’ve reported how much sales tax you’ve collected, or used a sales tax automation solution to do it for you, your next step is to file your sales tax returns.
You generally login at your State’s Department of Revenue to file. Check here for how to file sales tax online in every state.
Keep a couple of important things in mind when filing:
Always file a sales tax return on your due date – Do this even if you don’t owe anything to the state. States consider a sales tax filing to be a “check in” from your business, and may even penalize you if you don’t file a return.
Don’t discount sales tax discounts – About half the states with a sales tax will allow you to keep a small percentage of the sales tax you collect, as long as you file on time. See here more about state sales tax discounts. (If you choose to AutoFile, you get to keep those discounts!)
And that’s it! Now you’re mastered the basics of sales tax for Amazon FBA sellers!
Mark Faggiano is the Founder and CEO of TaxJar, a service that makes sales tax reporting and filing simple for more than 5,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!