Amazon Sales Tax 101

How Amazon Collects Sales Tax for Sellers

by Mark Faggiano

Amazon Collects Sales tax FBA
The scenario: you’re an FBA seller with a business who has registered for a sales tax permit in the state of Washington. You know you have inventory in at least one of the Amazon fulfillment centers there, meaning you have sales tax nexus in Washington, and would therefore need to collect sales tax in order to comply with the state’s sales tax rules.

One day, a customer in Washington orders an item from your store. However, the warehouse in Washington doesn’t have it, and it ships in from a fulfillment center in California. You’re pretty sure that Amazon won’t collect sales tax from that order…but the more you think about about it the more confusing it gets. Will sales tax be collected or not?

We’ receive this question a lot, so we thought we would take a second to clear things up.

Registered in the State

The confusion seems to lie in where the item ships from, but really what you need to worry about is where the item ships to.

Once you’ve told Amazon that your business is set to collect sales tax in Washington, they will collect sales tax on any applicable purchases from Washington buyers from that moment forward. That includes every order shipped into Washington no matter which fulfillment center it originates from. In other words, Amazon will assume you have sales tax nexus whenever you have told them you want to collect sales tax from buyers in a certain state.

And Amazon is right. Once you have established sales tax nexus in a state, either by having a business location there or by operating through FBA and storing goods in Amazon fulfillment centers (or for another reason), you have sales tax nexus and must charge sales tax on all purchases to buyers in that state, no matter where the actual item ships from.

When Does Nexus End?

So if you no longer have inventory stored in a state, do you still have nexus there? The short answer is yes.

The slightly longer answer is that once you have established nexus in a state, you officially have nexus until you notify the state that you are no longer doing business there. In the case of Amazon FBA sellers, even if you find yourself without any inventory in a state for awhile, if you end your nexus relationship with that state, you’ll have to file for a new sales tax permit should you once again end up with inventory in a fulfillment center in that state.

Here’s more info on how to cancel a sales tax permit.

Summary

Once you have sales tax nexus in a state, you are required to collect sales tax from all buyers in that state. It doesn’t matter if the shipment originates from an FBA warehouse (or even your own warehouse) in another state. If you make a sale and ship a product to a buyer in one of your nexus states, then you are required to collect sales tax from that buyer.

Do you have questions or something to say about collecting sales tax? Start the conversation in the comments!

If you’re already collecting sales tax and looking to save time on your sales tax filings,

start a 30-day free trial of TaxJar!

  • Ciara

    I have been selling with FBA for the past 8 months, and I have a physical business location in California. However, I have inventory in many different fulfillment centers across the nation, and I am not registered in any other state besides California. Will I get in trouble with those other states I have inventory in, if I am not registered in their state? What kind of penalties could I possibly be facing? Will I need to pay the taxes I have neglected to collect for those states?

    • It’s hard to say whether you will get in trouble or not. The reality is that the laws exist and the states are, according to what we hear from our customers, enforcing those laws more (especially when they stand to make more money). Penalties vary by state, but for the most part you could potential owe penalties as well as interest on what you failed to collect.

  • Kamal

    Hi there,
    I am looking to start a company in Florida (where I reside), and start using the FBA on Amazon. I have been getting so many different answers from different CPA’s as to whose responsibility it is to collect and pay.
    I have not even started my company, but do you feel that the best route to start with amazon is:
    – create company in FL
    – register company in all the different states where amazon has FBA presence (can you help me find out what these states are and how to register in these states)
    – then create account with Amazon and use FBA and tell them that I will collect tax in those states
    Please advise.

  • Hi Kamal,

    That sounds like you are on the right track. I have a couple of recommendations for you. First, download our free guide at http://www.fbasalestax.com. This will help you get started collecting sales tax on Amazon.

    One caution – Amazon may not send your inventory to all states that have Amazon fulfillment centers. I recommend reading “When Should I Register for a Sales Tax Permit?” whitepaper for more great info. http://offers.taxjar.com/sales-tax-permit

    I hope this helps!

  • Irene

    I am looking to start selling on Amazon.com using FBA . However, I am from the UK . what do I need to do to pay tax? Do I register a business in US or here on the UK?

  • Hi Irene,

    We recommend consulting an accountant. Sylvia Dion of SylviaDionCPA.com is an accountant who specializes in helping international sellers get compliant. You can also join our Sales Tax for eCommerce Sellers Facebook group where many accountants and your FBA selling peers can answer questions. Good luck with your FBA business!

    https://www.facebook.com/groups/SalesTax4EcommerceSellers/

  • Pingback: Does Inventory Give FBA Sellers Sales Tax Nexus in Other States?()

  • jimmy

    You have not answered your own question.
    If I register in Washington, but that FBA wareshouse is out of stock, and it ships from California, to say Florida, then what happens with the sales tax?

    • Hi Jimmy,

      It doesn’t matter from where your item ships. IF you have sales tax nexus in a state, you are required to register for a sales tax permit and charge sales tax to all buyers in that state. I hope that states it more clearly.

    • Rob

      My understanding is that as long as you have sales tax nexus in Florida you will have to collect sales tax, even if you’re registered in Washington and the items ship from California. Like TaxJar said, as long as you have sales tax nexus in the state where the items are being shipped to you have to collect sales tax, independently of where you registered or where the items are being shipped from. Also, my understanding is that if the items are shipped to a state where you do not have sales tax nexus you do not have to collect sales tax.

      • Rob, we totally agree! Good summation. 🙂

  • marky marc

    So if I only have inventory in KY, I only need to collect sales tax on orders shipped to KY?

  • cepm63

    I have been a marketplace seller on Amazon for 10 years. So I just read that they will charge sales tax in Colorado. Does Amazon collect and then send me the tax collected and then I file them with the state?

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