Amazon Sales Tax 101

Breaking News! Amazon Will Now Collect 3rd Party Sales Tax in Washington

by Jennifer Dunn

Amazon to collect sales tax on behalf of Washington 3rd party sellers

There’s great news for Amazon FBA sellers and the state of Washington! In response to Washington’s “marketplace facilitator law,” Amazon has announced to sellers that they will collect sales tax on behalf of 3rd party sellers starting January 1, 2018.

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What does this mean for FBA sellers?

Starting January 1, the day Washington’s law goes into effect, Amazon will collect sales tax on all Amazon.com and 3rd party sales to buyers in the state of Washington. Amazon FBA sellers will no longer have to collect sales tax via Amazon to Washington buyers.

Here’s what Amazon had to say:

Amazon to collect Washington sales tax on behalf of 3rd party sellers

You can find a link to this notification in Seller Central here.

Why did Amazon decide to collect sales tax?

Earlier this year, Washington passed a law requiring “marketplace facilitators” to collect sales tax.  In Washington’s law, marketplace facilitators are online marketplaces (like Amazon) that take payment on behalf of buyers. There are a few other requirements to be a marketplace, and you can read what Washington has to say about marketplace facilitators here.

Despite their past stance against collecting sales tax on behalf of 3rd party sellers, Amazon has decided to comply with this law. This is very good news for Amazon sellers in that, going forward, they will not be required to collect, file and remit sales tax to Washington. (Aside from the fact that this takes a sales tax burden off sellers’ plates, this is good news because Washington has historically been one of the most aggressive states when it came to pursuing out-of-state sellers for past due sales tax.)

This is also a smart move on Amazon’s part. It makes sellers happy and keeps products moving through their warehouses. It may also encourage 3rd party sellers to stop selling on other platforms and keep all their business on Amazon. (More on that below.)

As an Amazon FBA Seller, what do I do now?

This is a developing story, and I’ve talked to several sales tax experts who are working with the state of Washington for guidance on how to help their clients navigate this huge change. They’ve all cautioned me that there are a lot of unknowns here.

The thing we do know for sure is that Amazon 3rd party sellers will not need to collect sales tax from Washington buyers through Amazon starting on January 1, 2018. That’s even if you live in Washington. This is great news in itself!

However, I’m obliged to be the party pooper here and caution you to do your research and talk to a sales tax expert before you immediately cancel your Washington sales tax permit on January 1, 2018. There are still some open questions such as:

  1. Do FBA sellers still have sales tax nexus if their inventory is stored in Amazon fulfillment centers in Washington state?  – This is the million dollar question. The marketplace facilitator law does not change Washington’s standard of nexus, so in a bizarre scenario, Amazon FBA sellers with inventory stored in Washington may find themselves with nexus in Washington, but only required to collect sales tax from buyers on their non-Amazon sales channels. (This is the genius move by Amazon that I referenced above. Some smaller sellers may opt to change their business model to just sell on Amazon rather than go to the trouble of collecting sales tax on their Shopify, Bigcommerce, etc. sales.)
  2. What happens with uncollected back taxes? – Are noncompliant sellers still on the hook for the sales tax they didn’t collect and remit before the law went into affect? And what will Washington do to collect that tax? (If anything?)
  3. Who is responsible for Washington B&O tax? Similar to the nexus question, will people who have inventory stored in Amazon fulfillment centers still be considered “doing business” in the state and be required to pay Business & Occupation tax?

What if I currently collect Washington sales tax via Amazon?

If you are currently collecting Washington sales tax, be sure to continue to remit the amount you have collected to the state of Washington. Depending on how often you file, you may have a sales tax filing due in December and a monthly, quarterly or annual sales tax filing due in January.  Also, keep in mind that the law doesn’t go into affect until January 1, 2018 so, in my understanding, you should continue to collect sales tax from Amazon customers until that day.

What if I sell on multiple channels?

This has been one of the biggest questions we’ve seen about this new law. This law doesn’t change Washington’s standard of nexus, so sellers may still find themselves with nexus in Washington and obliged to collect sales tax from Washington buyers on their other, non-marketplace channels. To me, that makes this even more confusing, but I want to stress that this is one of those unknowns that sales tax experts are currently hashing out with the state of Washington. Multi-channels sellers should take a “wait and see” approach until Washington issues guidance.

We’re keeping on top of this story to answer these questions for sellers, so stay tuned here as we find out more.

What happens next?

Washington’s law and Amazon’s move are unprecedented, so there are still a lot of unknown factors here. The good news for sellers is that I predict that other states will see Washington’s success and pass similar laws. There are already similar “marketplace sales tax” laws in Minnesota and Pennsylvania, though neither of those are in effect yet. I’d say watch those two states next to determine what Amazon will decide to do. (And watch this space for any breaking news!)

As for the other states, as Amazon says “For orders shipped to customers in all other states, sellers are responsible for their tax obligations.” In other words, it’s business as usual in other states as the states and Amazon hash this out.

This is a developing story, so I’ll be updating here and in our Sales Tax for eCommerce Sellers Facebook group as we know more specific details. Stay tuned!

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