When you decided to sell through Amazon’s Fulfillment by Amazon program (FBA) you made a smart choice. With FBA, Amazon packs and ships your products and provides customer service.
In exchange for some of that convenience, though, comes so complexity on the business side of your FBA business. And one of those tradeoffs is sales tax compliance.
If you have sales tax nexus (i.e. a significant presence) in a state, that state requires that you collect sales tax from all buyers in that state. Storing items in an Amazon fulfillment center creates sales tax nexus. In other words, when you begin selling on FBA, you may suddenly find yourself with sales tax nexus in 14 additional states (and counting.)
But don’t get overwhelmed just yet! We have your step-by-step guide to handling sales tax as an Amazon FBA seller:
Step 1: Determine Where You Have Sales Tax Nexus
If you live and run your business in a state that levies a sales tax, then you have sales tax nexus there. But FBA gives you nexus in other states, too. While 14 states with Amazon fulfillment centers also have a sales tax, Amazon may not ship your products to all fulfillment centers. Find out here how to pull a report and determine where Amazon is holding your inventory.
Step 2: Register for a Sales Tax Permit
Once you have discovered you have sales tax nexus in a state, then you must register for a sales tax permit in that state. You can do this online through your state’s department of revenue or other taxing authority.
Some sales tax permits cost money, while others are free. Some sales tax permits must be renewed, while others don’t have to be renewed. You’ll find that every state is different. For information about your individual state, check out TaxJar’s sales tax resources.
When you register, the state will give you a filing frequency. You’ll usually file monthly, quarterly or annually.
Don’t collect sales tax from buyers in a state before you have registered for a sales tax permit. Most states consider this unlawful.
It can be tricky to determine when you should register for a sales tax permit, so if you have questions check out our “When to Register for a Sales Tax Permit” guide.
Step 3: Collect Sales Tax from Buyers in States Where You Have Sales Tax Nexus
Once you’ve determined where you have sales tax nexus and registered for your sales tax permits, it’s time to start collecting sales tax from buyers.
To assist you, we’ve put together a step-by-step guide to setting up sales tax collection through Amazon FBA.
Keep in mind that when you establish nexus in a state, you must collect sales tax on sales from ALL buyers in that state, not just Amazon FBA customers. For example, say you determine that you now have sales tax nexus in Texas and Tennessee due to FBA. if you sell on FBA and eBay and then have your own online store through a shopping cart like Shopify, you must set up all of those platforms to collect sales tax from buyers in Texas and Tennessee.
Here’s a video to help you get set up to collect sales tax through Amazon FBA:
Step 4: Figure out How Much You Owe to the State(s)
When it comes time to file a sales tax return, your next step is to figure out how much you owe each state. First, you need to calculate amount you’ve collected from sellers in each state on every channel you sell on. But in a majority of states, you need to take it a step further and calculate how much you collected in sales tax from buyers in each sales tax district. When you consider that some states have hundreds of taxing districts, you realize this can get really tricky, really quickly.
To do this manually requires pulling a report from each channel on which you sell and then slicing and dicing the numbers. Manually filing means poring over every sale and looking up tax codes on a state sales tax table. None of this is easy or quick.
But at TaxJar, we’ve made this part of your sales tax compliance much easier. TaxJar pulls in your sales tax transactions from the channels on which you sell – FBA, PayPal, eBay, Etsy, Shopify, Bigcommerce, Square and more – and creates your sales tax reports for you. This is vital when it comes to…
Step 5: File Sales Tax Returns
Once you’ve determined how much you owe to each state, it’s time to file your sales tax returns.
TaxJar takes care of your sales tax filing, too. After we’ve determined how much sales tax you’ve collected and which sales tax districts your buyers lived in, we’ll also AutoFile your sales tax returns in 26 states and counting.
For other states, we’ll provide you a return ready report so you can easily fill out your state sales tax return online. This transforms a task that used to take hours into something that only takes minutes so you can get back to doing what you do best – running your FBA business.
To file your sales tax return on your own, find the web address for your state’s department of revenue on this map.
There are a few more things to keep in mind when filing sales tax. Always file on time. If you’re late, you could receive a penalty. It’s no fun to receive a $50 penalty on a $5 sales tax bill.
Even better, paying early or on time can result in a sales tax discount in some states. That’s another good reason to sign up for AutoFIle with TaxJar – we’ll put your sales tax discount right back into your account.
Also, many states require that you file a “zero return” if you are registered for a sales tax permit in that state but didn’t collect any sales tax. Be wary of forgetting to file your zero return, because even that could result in a penalty.
Step 6: Relax!
Once your sales tax is filed, relax. You’ve put a lid on sales tax and now you can get back to sourcing products and running a lucrative FBA business.
We realize you might have more questions, we put together a FBA Sales Tax Guide just for you. And feel free to ask any questions in the comments!