After many requests and questions about Amazon FBA sales tax, I am going to address the issue of sales tax for Amazon FBA sellers in today’s post. I will begin this by saying that I am NOT a CPA, nor a tax attorney, so this CANNOT be construed as tax or legal advice. It is my interpretation of the current issues that are relevant to determining which states FBA sellers need to pay sales tax in at the time of this writing.
The issue of Amazon FBA sales tax all begins with something called nexus. There are slightly varying word usages in the definition of nexus as it relates to FBA sales tax, but the key word that continues to come up is having a “substantial” business presence in a state requiring the business to collect and remit sales tax from Amazon FBA sellers in that state. Note that sometimes the term “significant” is used interchangeably with “substantial” when discussing nexus and Amazon FBA sales tax. Instances that can result in an Amazon FBA sales tax nexus being created in a state include: having a physical presence, hiring an employee, and having inventory stored in a state, among many others. When nexus is created, sales tax must be collected.
The idea of a substantial business presence is not clearly defined, and is open to some interpretation. However, the way that you interpret the aforementioned sentence will likely provide you an answer as to which states you are required to pay sales tax in. There is little in the way of legal precedent related to FBA sellers and sales tax, the “legal standard” to date regarding nexus is Quill v. North Dakota. You can find out more about the case HERE. Another potentially relevant piece of information is the interstate commerce clause of the constitution. I would recommend you read up more on that if you are interested, but the argument is against states passing legislation that “discriminates against or excessively burdens interstate commerce.” More info, and source of the previous quote, can be found HERE.
Sales Tax Analysis
We’ll begin the analysis with something that is rarely debated. Sellers have significant nexus in their home state, and as such are required to collect and remit sales tax in their home state. What this means is that if you are located in Iowa, and you sell an item to a customer located in Iowa, you are required to collect sales tax from the buyer and remit it to the state of Iowa. Now, assuming that you have nexus in no other state, if you sell an item to a customer in Kentucky (or any of the other 48 states in the US) you are not obligated to collect sales tax. In this instance, the buyer is generally required to pay “use tax” to the state in which they reside. Use tax is generally owed when a buyer buys an item out of state or online, brings it back to his home state to use, and did not pay sales tax on the purchase in the other state/online, but if the buyer was to purchase it in their home state then sales tax would have been due. This paragraph contains information that can generally be agreed upon, and is not subject to much debate.
Now, here’s where it starts to get a little tricky, do FBA sellers have nexus in any or all of the states in which there are amazon warehouses? Depending on whom you ask you are bound to get vastly different answers. I have even received different answers from various CPAs that I have discussed this issue with. The answers from the CPAs ranged from, yes in all states that amazon has warehouses in, to no not in any of the states, to the issue is quite complicated and we aren’t currently getting involved.
As it relates to FBA sales, there are 3 stances that could be argued and I will take a look at each one and list some arguments on either side of each stance. Note that some of the arguments for one stance will support another stance, and vice versa, so keep that in mind while reading through this. To avoid redundancy and in an effort to keep the length of this post length tolerable, I have limited listing the same argument multiple times.
The first is that having inventory stored in amazon warehouses does not create nexus at all, and as a result you are not obligated to pay sales tax in any state other than the one in which you reside.
- Having a few items, or even a few hundred items, sitting in a warehouse in another state is not enough to create a “significant” business presence. This could possibly be compared to renting a small storage unit in another state, all depending on the number of items you have stored at amazon warehouses.
- There is no legal precedent indicating that FBA sellers are required to collect sales tax in other states.
- When using FBA you cede control of the location of your inventory directly to amazon, as amazon chooses which warehouses your products are sent to.
- Buyer’s purchasing items are required to pay use tax on the items purchased, and as a result the state will be paid their share of the sales tax regardless of whether it is collected and remitted by the seller as sales tax, or paid directly to the state by the buyer as use tax.
- This is the most aggressive stance in that it creates the most exposure for having a future liability in the form of a state sending you a bill for unpaid sales taxes. In this instance a state would be arguing that you did have nexus in the state the entire time.
- Having inventory stored in a state, and shipping to a warehouse in a state on a regular basis can be considered nexus, and as such sales tax should have been paid.
- Having nexus requires the seller to collect sales tax, and as a result the use tax argument is not valid.
The second is that you decide you have significant nexus in every state in which you ship directly to when sending your products to amazon. Most sellers have 2 to 8 warehouses that they ship to on a regular basis, so this would mean paying sales tax in all of the states in which these warehouses are located (assuming the states have a sales tax).
- Sending inventory to specific warehouses on a regular basis and having items stored there, seems to constitute a significant business presence, and therefore nexus.
- There is little risk of any future liability.
- Shipping items to a warehouse and having them stored there does not constitute nexus as you don’t have control of how long they stay in each location.
- Compliance costs are high in terms of time and money.
The third option is that you decide that as you are a part of amazon’s FBA program, you have created nexus in every state in which there is an amazon warehouse. Amazon currently has warehouses in 14 states, but not all of these states currently require sales tax.
- Being a part of the amazon FBA program and sending inventory can result in having your inventory moved around to any of amazon’s warehouses and as such you have nexus in all of the states where amazon has warehouses.
- If sales taxes are paid properly, there virtually no risk of any future liability.
- If a seller has no inventory stored in a state, and never ships to state, it is quite unlikely that they could have created nexus. There could be issues related to improperly collecting sales tax, although you would be hard pressed to find a state that would dispute this. Buyers are unlikely to dispute this as well, as sales tax is generally a small portion of any purchase.
- Compliance costs are very high in terms of time and money.
There is a very important issue to note regarding the second and third options just mentioned, if you have nexus in these states for sales tax, do you also have nexus for income tax? This could require you to file and/or pay income tax on a personal or business level in these states as well as sales tax. If you do have nexus for both purposes, then it could require you to file and possibly pay income taxes in the states in which you are paying sales tax.
Another important issue to note in regards to nexus is that if you create nexus in one aspect of your business that it affects all aspects of your business. For example, if you create nexus selling FBA, and also sell on eBay, then you have nexus and the obligation to collect sales tax in the states you have nexus for the eBay business as well.
As you can see there are pros and cons to all of these arguments. It is important to note for all of these options that there is no specific legal precedent to provide guidance as to which is the best option. A lot of it will come down to what you feel is right, and what is recommended by your CPA. If you don’t have a CPA, or need to discuss the issue of FBA sales tax with your CPA, I would recommend discussing the aforementioned alternatives, and these questions:
- What are the income tax implications?
- In dollars, what is my potential liability for each option?
- If I haven’t been paying sales taxes, do I pay retroactively?
- What do you recommend I do in regards to sales tax?
- What are the implications for any other income streams?
In regards to figuring out where your FBA inventory is currently located you can find out some of this information by going to your amazon seller account home page, hover over reports, click fulfillment, and look in the inventory section. There are several reports here that show locations by the 4 character warehouse codes, and I would recommend taking a look through them to get an idea of where your items are stored when making your decision. There are also sales reports that can be viewed that show the location of your buyers.
Another piece of information that I believe is relevant is which states have amazon warehouses and the possibility of where nexus could be created. There are amazon fulfillment centers currently in 14 states. Two of these states, Delaware, and New Hampshire, do not have state sales tax, so regardless of if nexus is created or not in these 2 states, there is no obligation to collect and remit sales tax. As of the 2013 census the total population of the United States was about 316.13 million people. The total number of people living in the states with amazon fulfillment centers, and thus the states that you could have nexus in, is about 124.36 million people. If you live in one of the states that has an amazon fulfillment center, or a state that has no sales tax, then you could potentially have nexus with 39.3% of the US population that could purchase from you on amazon. If you live in a state that does not have an amazon fulfillment center, then you would have to add the population of your state to the percentage that you could potentially have nexus with. Regardless of which state you live in, you will potentially have nexus with less than half of the US population. Source for the US census data by state is HERE, and states with amazon warehouses is HERE. My point with this, is that if your amazon customers are representative of the US population, regardless of which states you decide to collect sales tax in, it will be on less than half of all of your sales. Note that these stats are subject to change as amazon builds more fulfillment centers.
If you decide you have the obligation to collect and remit sales tax, TaxJar is one service that I am aware of that can help with the collection of sales tax. I tried their free trial in the past, and they broke out the sales by state, and as a result the sales tax that would be owed in each state in an easy to see manner. I am not currently using their service, as I have found reports that allow me to gather the information I need related to sales tax. If you use TaxJar, or know of any other services that can help, please share in the comments. Along these lines, it’s worth noting that amazon will collect sales tax on your behalf by entering the tax settings when you list items for sale. This service comes with a fee of 2.9% of the transaction amount, but there aren’t really any alternatives. You are still responsible for filing returns and remitting payments to each state you decide you have nexus in.
I know this is a lot of information, but even so, this is not meant to be all encompassing for making a decision regarding sales tax. It should give you some things to think about when making your decision, and identify points to research further.
Again, I am NOT a CPA or a tax professional, and none of the above is to be construed as tax or legal advice. It is simply my understanding of issues relevant to determining where to pay sales tax when selling via FBA, and again is not meant to be all encompassing.
What are your thoughts on sales tax? Are there other important decision factors? Perhaps another option that would make sense that I don’t have listed? I would love to hear your thoughts below in the comments!
Please subscribe below if you haven’t already!
82 thoughts on “Sales Tax for FBA Sellers”
Does this only apply to fba sellers or other sellers too?
This post is specifically aimed at discussing the sales tax implications for sellers utilizing the fulfillment by Amazon program. Sales tax will still apply to other sellers, but not in the same way.
In Quill Corp. v. North Dakota, the Supreme Court ruled that a business must have a physical presence in a state for that state to require it to collect sales taxes.
Having inventory in a amazon warehouse, is not physical presence, having a warehouse, a business address or a salesman, it is.
Pay sales taxes only in the states where you have a business presence, not a book in transit.
Thanks for the comment and for sharing your opinion.
I collect sales tax from buyers in my own home state of California. Then I file the annual sales tax return required in California. That is all I do. Not until I am forced to do more will I do more. That is enough. The more money you give them, the more they will expect, and the more they will spend.
Thanks for sharing Richard!
Pingback: How to Handle Amazon FBA Sales Tax – Online Selling Experiment
I am just starting to consider selling some items on Amazon, and had hoped to use FBA. Unfortunately, it appears to be a huge – and expensive – hornet’s next. I got a business license today from my home town as a Sole Prop, not am considering changing to an LLC to protect myself if something should go awry. The last think I need is my house attached because of some tax snafu.
I did find something interesting in my research, which speaks to what someone else has posted here. I live in SC and spent a few hours on the SC Dept of Revenue web site this AM. On their site, they detail what a “Consignment Arrangement” is – using a person who makes wooden toys. The person delivers the wooden toys to ABC Craft Store to display and sell in the store. ABC Craft Store handles all aspects of the sale, collects AND remits the sales tax to the state, even though it is not their inventory.
This sounded exactly like what happens with FBA to me, so I wrote to the State and their response was that it is not MY responsibility to collect and remit the sales tax to the state, it is Amazon’s responsibility, as it is THEIR store, and I am only “displaying” my products in their store, and Amazon is getting a commission and fees for doing so.
It appears the real definer here is who is the “Retailer” – i.e., who has the store in which the product sells, that defines a consignment arrangement.
Now it’s a totally different deal if you have your own website and list your products and use Amazon FBA to fulfill. Clearly then YOU are the retailer and it is YOUR store, and you are obligated to collect and remit the sales tax.
I find it puzzling that more people are not pursuing this, and a bit infuriating that other states have demanded that Amazon collect and remit the sales tax and they refuse (!!??). How can a company just refuse what a taxing authority mandates?
I’m sure Amazon doesn’t want to lose the 2.9% fee they charge FBA sellers to collect the sales tax, but it is – at least in SC – not the Seller’s responsibility – it is Amazons, and in reality Sellers shouldn’t be paying it or remitting tax. Seems Amazon has pulled the wool over our eyes and they’ve got us doing – and paying for – what is their job.
Thanks for sharing your thoughts and research on this Debbie. It’s definitely a tough subject, and there’s not a lot of precedent on how things are handled at the moment.
Hi, thank you for the informative post.
As an aside, and sorry if this has been covered already, is it possible to use certificates of resale at brick and mortar stores to avoid paying sales tax?
Yes, it is possible to use those in a brick and mortar store.
Pingback: How to Find Out How Much Sales Tax You Owe Each State as an FBA Seller – Online Selling Experiment
Great post! I’m wondering if you started using TaxJar or other tax services yet? I might have missed your comment on this. If so, what are your thoughts on their service? I’m just starting out and would really appreciate this help.
And is there a way to limit their MWS access or do they have access to everything?!??!
Also, when you registered in each state, did you just list the Amazon warehouse you send your stuff into as your address? Thanks a bunch.
Thanks for your comment. I recommend discussing these questions with a CPA / taxjar directly. Unfortunately, I can’t get any more into the specifics than I did in the post.
Hi I am planning to sell FBA in USA. I am from Canada. Few questions plz if any one can answer I will be grateful. 1) how much it costs to register for sales permit and business in all those Amazon nexus states? 2) how much time? 3) I read that taxes to be done monthly quarterly or annually, it’s a lot of money just to file taxes monthly if sales have not been great and sales taxes received are few dollars even using tax jar or CPA 4) when to stop paying sales tax if I run out of my inventory at one ware house 5) is it criminal offense not registering for sales tax 6) how much CPA charge to file taxes in those states any experience?
A poor guy who is just going few hundred dollar sales …. As if he registers and collects sales tax then he should remit them. So is it better for him to wait few months until his sales volume are up(what is that volume?) and set up taxes then? In sub case is there a possibility that he will be audited for past few months when he wasn’t registered and not collecting sales tax because his sales were low. Thx
I would highly recommend seeking the advice of a CPA on the majority of these questions.
Yes, and there is a big problem with building the sales tax into the price because some states specifically prohibit this without including that fact in the offer page. As you know, you can’t have descriptions or information that show your product is somehow different from the other products on the page, so it’s a bad idea, all around.
Your article and these comments have been the most-informing resource that I have found (and I have been consumed with looking for information for a week). Have there been any updates in legislation since your article?
Also, can you help me out with what seems to be a simple question? Is there a way to collect taxes on your FBA sales without paying Amazon’s 2.9% collecting fee? The only option I’ve found is to build the tax into your sales price but then you are collecting a set tax for various states (including some that don’t require sales tax).
Glad to hear it, no updates that I am aware of at the moment. Also, I don’t know of any way to avoid Amazon’s sales tax collection fee.
Thanks for a great site, lots of good information. I have a question regarding paying sales tax when purchasing from retail stores. Is there any difference in using a resale certificate to purchase items tax free versus waiting until you file your taxes and deducting the sales tax as an expense? I find some stores won’t accept certificate and the ones that do, sometimes can turn into a long process. Thanks again. Steven
I normally try to use my resale certificate in stores when possible, as it can be a hassle to get the tax back after the fact. It can be a pain, but if tax is greater than about $15 on a transaction, I try to do tax exempt in store.
Great article. From the people I have spoken to online and the things I have read, it seems as though about 90% of FBA sellers are only collecting and remitting sales tax to their own state. I know that you are using Taxjar. However, you never really gave your opinion and mentioned whether or not you are collecting for all the states where your inventory is located.
Thank you. I wrote the article in a very intentional way due to the nature of sales tax. I have not publicly stated my view as I don’t want people following my strategies on sales tax without putting their own research into the matter. Hope this is understandable!
Here is the dilemma, I need to get a business license and sales tax exemption in my State. I want to be able to buy wholesale. The state gives the exemption because they think they will collect the sales tax on goods sold. However, I will have to send the tax collected to other states where the FBA warehouses are. My question is, can I use the sales tax # from the state where the warehouse is located ( not my state) to buy wholesale? There is no warehouse in my state. Regards, JM
I am not a CPA/lawyer so this is not tax/legal advice, but you should be able to use the tax id # from your state to purchase wholesale from any other state.
I’ve been a pro seller for about 2 years and have decided to move to FBA. If I have to register and pay sales tax in all these states….well so be it. What I find most confusing is , you don’t actually know what states your product is being warehoused in. I’m not going to make folks pay sales tax and remit it to the state if I have no products there. Yes I see where you can do detective work on your sellers home page to try to determine where your product is stored….but …really? That seems a bit extreme. So I am still undecided about making the switch, although after having 4,000 sales last year and anticipating more this year it would be a relief to turn over the laborious packing/shipping etc. I did just sign on with TaxJar, but still having to remit all the tax paperwork will be a chore…taking up the time I recover switching to FBA! It just seems that if Amazon doesn’t offer the location of your products upfront, then a seller should not worry too much about where the tax should go. Thoughts? Thank you
I tend to agree with your conclusion, although I am not sure if the taxing authorities will see it the same way. It really all comes down to a risk/reward analysis with sales tax in my opinion, as very few of the issues are cut and dry at this point.
Thanks for a thought provoking article.
I have to wonder as I look at the various States’ sales tax registration sites about the oft found statment that sales tax only needs to be collected from a buyer in the same State as the nexus. In other words, any buyers from Ohio of my items stored in an Indiana fulfillment center will not be subject to sales tax. What is the likely percentage that my item stored in Indiana will be purchased from someone in Indiana?
In other words, what is my likely total liability 7-10 years down the line?
I guess it is all a matter of the scale of your business.
You’re welcome Bev! You bring up some interesting points, and hopefully there will be some clarifying legislation on those questions in the somewhat near future.
Great Article and interesting comments in the replies.
I’d like to throw a curved ball question here.
How does all this Sales Tax stuff apply to someone operating an Amazon FBA business from outside the USA. I live downunder in New Zealand and have been intending to setup an Amazon FBA business selling items imported from China to the USA, as well as also a few retail arbitrage products sourced from some USA outlets and forwarded to FBA warehouses for sale on Amazon.
I’d love to hear the feedback on my situation and the collection of Sales tax (as I know this would also apply to a very large number of others as well)
That is quite the curve ball, and unfortunately I don’t know the answer to that. I would recommend consulting a CPA to see what their recommendation would be.
You wrote an awesome article. We are a company that works with many online marketers and help them launch their business with confidence. We incorporate in all 50 states and have many international clients doing business in the U.S. We are looking to provide a back end turn key solution to form the entity and obtain all the sales tax numbers for clients. It is possible to ask you a couple of questions offline? My email is firstname.lastname@example.org. Thanks in advance.
Nevada Corporate Planners
Thanks Scott! I will send you an email shortly.
Hi Ryan, thank you for this helpful article. After reading this post I do not want to sale my items with the Amazon FBA program. Yesterday I only filled out my personal information on the tax part of the forms. I do not have a business so I did not put a business name on the form. I was just wanting to sale some items that i have. I only gave them my name and my social security number. I just did this before finding your post and i m so glad i found you. I have not heard back from them yet and iam very happy to say that I haven’t sent them not one of my items to sell. My question is how do I get out of something I’m not really in. Do I call them and tell them I changed my mind cancel the whole thing. What do I do in this case? Thanks Rafar S.
I would just call or email them to let them know.
I’ve seen a twist on this issue offered up by the California Board of Equalization (BOE) (California’s Tax Dept). They suggested that Amazon FBA is a consignment program. As such, Amazon would be required to collect sales taxes on FBA sales in the “warehouse” states (this includes California). Amazon disagreed and refused to collect the taxes. They claimed that they are just a “middleman” in the FBA sales process and are not responsible for collecting the taxes.
When you think about, California is likely correct. In the Amazon FBA process, “sellers” send products to a warehouse determined by Amazon. Those products are then moved around the Amazon FBA warehouse network at Amazon’s discretion. When a sale occurs, Amazon collects the money. They keep commissions and fees, then send net proceeds to “sellers”. In this relationship, sellers are acting as consignors and Amazon is acting as a consignee.
In most consignment arrangements, the consignee collects the sales taxes because they make the sales.
Of course, Amazon does send those sales messages to us when a product sells. You know:
Greetings from Amazon.com
We thought you’d like to know that we completed and shipped your Amazon.com
Fulfillment Order to one of your customers:
But, we are prohibited from any type of followup messages to our “customers” other than some very limited options within the Amazon system. We are even prohibited from inserting any kind of sales literature in our packages. That’s because our “customers” are really Amazon’s customers. Sounds a lot like consignment to me.
What do you think?
You bring up some excellent points. I would agree with you that it has many of the same characteristics of a consignment sale, the catch is that it has not been decided in court. My hope is that at some point this will be settled and there will be a cut and dry answer for all of us FBA sellers.
With that said, I think you bring up an excellent point that should be factored in when individuals are determining how to deal with sales tax and FBA.
I have a “big beef” with Amazon concerning this issue. But, I can’t really do much about it. Amazon FBA, by construction, is a “consignment” program. “Sellers” send product to Amazon’s warehouses, at Amazon’s discretion. Amazon then moves inventory all over their warehouse network, at their discretion. They collect money for the sales, take a commission and fees, and remit the remaining funds to the “sellers”. So, Amazon controls the entire sales process. And we “sellers” are not allowed to insert any sales materials in our packages or have any “improper” communications with our “customers” after the sale. This is because they are really Amazon’s customers.
Yet, on Seller Central, they say that we are responsible dealing with the sales taxes. They claim that they are just “middlemen” between the buyers and us sellers. The California BOE took issue with this a couple of years ago. They interpreted FBA as consignment and insisted that Amazon collect sales taxes. Amazon refused. When Texas insisted that Amazon collect sales taxes there (there is an FBA warehouse near Dallas), Amazon threatened to shut down the warehouse located there.
Here’s a link to the article about the California issue.
Here’s another article about some of Amazon’s business practices (See: Reason #2: Amazon.com is a World-Class Tax-Dodger)
Amazon tries to have it “both ways” when it comes to the sales tax issue. They want the benefit of sales, but they want to pass on the administrative hassles to sellers. Believe me, they have the infrastructure to handle this issue for us.
Some is this has changed recently, since Amazon is now collecting sales taxes in many more states. But, they are still insisting that FBA sellers are responsible for sales taxes for FBA sales.
I agree with your thoughts in this comment, and echo my response to your other comment on this post.
When you source online, do you pay the sales tax when purchasing to resell? I know with wholesale items you can use your business or sales tax license to avoid this but I’m curious what people do with online retail arbitrage.
Yes so far when I source online I just pay the sales tax. I believe some have a way to purchase tax exempt online, but I haven’t looked into it yet.
I have read this article and its comments over and over again. If the stance where I have to pay sales tax in every state that Amazon has ‘nexus’ in, is true, then I’m in big trouble! I only started in March of this year but if that were true, it would mean I would owe more than $3.5k in combined sales tax!
So here is one thing no one has answered. If I set up to collect and remit sales tax for all these states, what is stopping them from coming after me claiming that I now owe income tax on the profit from those states as well? Any ideas?
The income tax issue is one that I mentioned in the initial post, and it’s a tricky issue. I won’t be able to provide any advice on it, as it’s really a question that needs to be answered by a CPA.
I’m late on this but I have dealt with sales tax issues for years and have never heard of a state coming to you for income tax. This would be bizarre. Sales tax and income tax are totally different things. (I’m not a CPA or lawyer, etc.)
States DO go after out-of-state companies for income taxes. They will try anything they can possibly get away with because they want the money! & once you ‘admit’ that you have Nexus with a state, good luck ever trying to get out of it in the future (they won’t care if you close your Amazon business or if you no longer use FBA)
Check out this article; It’s not specifically about Amazon but it’s relevant. https://www.city-journal.org/html/state-tax-grab-13628.html
I actually called Amazon 2 days ago asking about nexus and the representative told me that I was NOT responsible for the sales tax outside my registered state and that she was looking for the information in the seller help pages to back it. She said she had a call about this before and read it somewhere, but she was taking too long so I told her to call me back when she found it. It has been 2 days and I haven’t heard back so I called seller support again today. This time two different representatives told me the same thing (although only one dealt with FBA sellers). However, nobody has since provided definitive written proof stating that Amazon would take care of it. Where in the Amazon seller agreement does it state that merchants need to cover sales taxes for all Amazon warehouse states?
Secondly, I asked how do I find out how many items I have in which warehouses? I don’t think I have nexus in all the warehouses so I only want to register in the states where I have some sort of presence. He said to go to reports> fulfillment >inventory >daily inventory history and download the report to tell you how many (quantity) of each item in each warehouse. Previously I looked under “inventory event detail” but I didn’t understand what was +1 or -1 under quantity. However, looking under daily inventory history I can sort every “sellable” item by warehouse on Excel and I was able to see everything and tally up my products.
Now my question is what is considered “significant” presence? Aside from my home state, I only have quantities of 10, 30, 50, 100, or 300 (roughly) items in other Amazon warehouses. I’m a small seller so I don’t know if this constitutes as nexus since our inventory is somewhat transient. There is no guarantee that future inventory would go back to those warehouses and I would prefer not to file sales tax reports if there is zero taxes collected in the future.
Has anyone else called Amazon? I don’t know if we are all over thinking this sales tax issue or if the majority of Amazon’s employees are just under-trained to deal with this issue. They may not understand legal and tax issues as they are primarily customer service trained so maybe they just don’t know what “nexus” is.
Perhaps the better question to ask is “How should I register my business” rather than how do I pay sales tax? I think Amazon’s wording states that they only collect sales taxes for you if your business is REGISTERED in those states. I have been reading about each state on TaxJar’s website and it’s unclear if you have to first register your company to do business in that state and then get a sales tax ID or if you can just register for a sales tax ID? This can be confusing because registering your business in another state makes it sound like your company is turning in a “foreign entity” which would lead to more costs legally.
What are your thoughts?
Unfortunately, I believe the information you received from the amazon representatives about nexus is inaccurate. Take a look through some of the previous comments, and in particular some of the responses from GHarkness, they give you some ideas of how things are being handled.
As for your other questions, they are all very valid points and questions. I won’t be able to personally weigh in as I am not a CPA, and it is open to interpretation. Sales tax is a complicated issue, and my goal with this post is to shed some light on some of the issues that I am aware, but by no means is it a definitive guide.
As an Amazon Pro Seller I do not have the time to attempt to figure out the sales tax issues. Hats off to GHarkness for shedding light on the matter as a tax professional.
TaxJar is a no brainer service starting at 33 cents per day. I have utilized their excellent program since starting my FBA business and have never looked back.
My business is currently registered in the 13 Amazon Nexus states that have sales tax as well as my home state.
As GHarkness can probably attest to, you DO NOT want to be audited with the findings that you have not paid sales taxes to the states that are owed.
If you don’t mind me asking a couple questions. 1. How long did it take you to get registered in the 13 states? 2. Was there a specific company or process you used to get the ball rolling?
Just started FBA and I want to make sure I have the tax issue 100% covered from the beginning.
Thank you for your time.
You can enroll and pay the fees online with most of the states. I believe it is NV where you need to also snail mail them the payment. In some states the process is simple, in others it’s more convoluted.
You will need to first register your business and then complete the tax ID registration. Keep in mind to indicate that your business is not physically located in all the states. You only need to register a physical business presence in the state where you live. In some states the process is all in one form, in others it takes two separate forms.
The whole process took about six hours to complete for all the states. Some states will provide your tax ID at the end of the online process, others will mail it to you.
Here are my costs for the States that charged:
TaxJar does not automate the reporting. They obtain the info from Amazon and provide you with reminders of when the tax is due and how much you owe. All of the States want you to file and pay online which makes it easier.
With the Tax Collection Settings in Amazon Seller Central you really need to read all the supplied documentation. I chose A_GEN_TAX as my default Product Tax Code. After you obtain all the State Tax ID numbers you enter them in the State listings found at Set up your Tax Collection Settings.
Hope this helps.
Thanks for sharing Mike, and for responding to the questions of others in the comments, it is much appreciated!
I’m in the process of registering right now and CA is requiring me to register as a foreign entity in order to get a secretary of state ID (cost of $800). That was the step I got stuck on eReg. I don’t think this is true, but that is what they said when I called them…am I doing this wrong??
TJ – this is where I began the online registration process as an out of state business for a Certificate of Registration-Use Tax for CA:
When you finish the process you will be able to print your Certificate – there is no cost for the process.
A nice plus for CA is that they only require an annual sales tax filing for sales amounts less that ($10,000) annually.
CA requires a corporate number from the Secretary of State. I am having the same issue. I was wondering if I could just sign up as an individual so I don’t have to pay the $800 fee. My tax is only about $40 right now so that fee is excessive in y opinion.
Mark – yes, you want to register as an individual.
For anyone in the future who sees this, have a look at the below link from Taxjar. They provide a number to call CA tax office and override the requirement to pay $800.
Thanks for all the help Mike!
Is there a separate form for indicating that you are only using Amazon’s warehouse in some states? I couldn’t see to find it…
Also, if there isn’t, would we just list Amazon’s warehouse address as being our business address in that particular state?
I used the same website you provided. Which part are you saying to use “individual”? The first part where it says “preparer information”? I think this would depend on your business structure. I assumed preparer meant sole proprietorship, but I am an LLC (single member). I don’t know if single member LLCs can count as individuals since the website has an option for LLC as well. There wasn’t a sole proprietorship option either. However, there was a unincorporated business organization…
TJ – “preparer Information” refers to someone other than yourself (your accountant for example) completing the information for you.
I signed up as an individual.
I misspoke, I meant for the ownership information. I just called the CA BOE and asked this question. They said that if you register as an individual you have become a sole proprietorship (they use your SSN) and therefore you are liable for any tax issues (and not your LLC). However, if you are registered as an LLC in all the other Amazon states you would be registered under your EIN. Depending on how you are taxed, I assume this messes up your income tax. If you are still being taxed as a pass through LLC, you probably are OK because individual and company income go onto your 1040. However, if you are taxed Subchapter S that means you can only collect income on everything except CA sales for your LLC. Someone correct me if I am wrong…but those are my own thoughts after thinking about it. However, I’m not a CPA.
Ryan, how did you register for CA? Did you sign up to be a foreign entity?
I am going to pass on answering this question as I am not a CPA, and that is really who should be answering this. Here is a link to a group that might be able to help with your question if you ask it there: https://www.facebook.com/groups/SalesTax4EcommerceSellers/
Nice article. Thanks for writing it!
Thank you Cheryl!
I’ve only been selling on Amazon FBA for about 3 months now.
I’ve been seeing similar posts to yours throughout the FBA community lately so I contacted Amazon seller support last week regarding sales tax.
They informed me that there is nothing I need to do as they will handle all sales taxes for me if my items are sold FBA.
Am I missing something here?
Would you mind forwarding that email to me at email@example.com?
I know they will handle the collection of sales taxes, but as far as I know they do not do this automatically, or pay them to the applicable states on your behalf. Are you able to see any trace of them taking care of this on your behalf?
Unfortunately, I believe the information you received was likely inaccurate, although, if it is accurate then that would be AWESOME for all FBA sellers.
I phoned them to ask about the sales tax situation so I don’t have an email from them.
I did look through my orders and haven’t found any where sales tax has been collected by Amazon.
Again, the seller support rep told me on the phone that if sales tax needs to be collected, they will do it and then pay the appropriate state.
If you think it would help, I can re-open the case regarding the sales tax and this time have it all in writing as opposed to a phone call.
Unfortunately I don’t think it would help to have it in writing. If you are debating whether or not the info you received is accurate, I would definitely re-open the case.
I would also recommend reading GHarkness’s comment in response to yours as she is a CPA, and makes some excellent points.
Please keep me up to date on what you amazon tells you if you reopen the case.
I did go ahead and re-open the case and will let you know how they respond.
I guess what’s confusing me is, if I sell an item through FBA and Amazon collects sales tax and then pays it to the appropriate state, is there anything I still need to do for that transaction?
Also, am I wrong in assuming that Amazon will be collecting sales tax where appropriate on my FBA sales?
Yes, Joe, you are definitely missing something, but it’s not your fault! Your Amazon Seller Suport person was, in a word: wrong! Poorly trained, new, or misunderstanding the question…one of those.
Here are a couple ways, though, to prove this to yourself, so you don’t have to take anyone’s word for it.
First: Take a look at your order reports and click through to the transaction. Choose a transaction in your own state, so you know nexus would absolutely be in force. Presuming you have NOT set up anything in tax settings, do you see sales tax paid by the buyer? If yes, please let us all know. Otherwise, understand that it was NOT collected and yes, you DO need to worry about this.
Second way: Take a look at your shipping queue page. Scroll ALL the way down to the bottom. Read this: “* Please note that you may have an obligation to self report and pay sales and use, property, income, and other taxes/fees imposed by the states and localities where your inventory is located.” This particular notice is on almost every page in seller central. There’s nothing magic about the shipping queue; I am just picking a place where I know it exists.
I am in no way trying to belittle you or make fun of you, but this situation is very serious and (in my opinion) Amazon is NOT doing its sellers right by dropping this very confusing issue in our laps. Nevertheless, please know that your Seller Support person was, again, wrong, wrong, WRONG!!
I did go ahead and re-open the case and will let you know how they respond.
I guess what’s confusing me is, if I sell an item through FBA and Amazon collects sales tax and then pays it to the appropriate state, is there anything I still need to do for that transaction?
Also, am I wrong in assuming that Amazon will be collecting sales tax where appropriate on my FBA sales?
Thanks for the reply.
As I mentioned to Ryan, I’m confused as to when sales tax should be collected.
I was assuming that if sales tax were to be collected, Amazon would know this and would then collect the appropriate tax and pay it to the appropriate state.
If they are not collecting sales tax when they should be and then that’s on me, how do I collect the sales tax from the buyer if the item is sold FBA? I don’t think I can go back to the buyer after the fact and ask for sales tax.
Also, if I’m to pay sales tax when no sales tax was collected from the buyer, then a sale with a small profit could then turn into a loss if I have to pay the sales tax on the buyers behalf…I certainly don’t like that idea.
I’m sure I’m missing something here (hopefully). Any additional info you can give is appreciated.
Hi, Joe! Thanks for taking my information in the spirit in which it is intended. I suggest you read very carefully this page in Seller help:
Pay particular attention to the bottom paragraph entitled Your Responsibilities. And then go back to the top and read it ALL. Every word is important!
Based on the content of your last email, I think you are making some unwarranted assumptions. Remember: you cannot assume anything when it comes to Amazon (but I do hear you when you tell me the support representative told you these things, and I understand why you would believe her. But she’s still wrong.)
Back to your question: How do you collect sales tax with FBA? That is the entire purpose of the help page I linked you to, but the short answer is: you create a PRO SELLER account, you sign up to collect tax directly with the States where you have nexus, you then take THAT information to Amazon and put it in the Tax Settings area. THEN, Amazon will collect the tax and send (most of it) to you. There is a fee for this service. And no, you cannot collect sales tax after the fact. 🙁
For your final question “but it would cause me to take a loss!” I’m afraid the state, and Amazon, and anyone else you might talk to, really doesn’t care about your profitability. Sad news, I know! So: price your products well, sign up in the states where you have nexus, fill in your tax settings on Amazon and then use TaxJar to help you sort it all out (meaning file and remit) properly.
I KNOW this is overwhelming. It took even me some time to wrap my head around it. But you can do it. One step at a time!
Thanks for helping with all these questions GHarkness! It’s good to have a CPA contributing related to this topic 🙂
I would like to discuss referring clients to you in this situation. I would like to discuss with your consulting rates and services. Please contact me either at support@LaunchwithConfidence.com or call me at 702-367-7373. Thanks in advance!
Great post Ryan!
Very timely topic for me, since I am new to FBA and my sales are starting to really ramp up. Now is the time to make a decision about what to do regarding sales tax.
Thanks Jeff! Glad to hear it’s a timely topic, it’s definitely good to get your game plan in place right away.
Another thought provoking post. I am a new pro seller as of June 4th this year and my CPA never said a word to me about collecting sales tax other than in Florida where I live. Come to find out she has no experience with online retailers and did not know herself.
I have a question, is there a service (maybe TaxJar) that can help sign up for sales tax certificates in all these states? I tried to sign up just in Arizona and it took 45 minutes and then there was an error when I hit the final submit button and all my info was lost. I had to start over. Any tips on this situation from folks who have done it before?
I would at least bring this topic up with your CPA and see what they say, and you might want to consult a CPA whom has some experience with online retailers.
As for getting setup in each state, I am not aware of a service that will do this for you. TaxJar has some good state by state info about getting setup that can be found on this link: https://www.taxjar.com/states/
I am a CPA, and I think you did a very good job of explaining the alternatives and the arguments. You left out the head-in-the-sand alternative where people say “Sales TAX! I don’t need to do no stinking sales tax!” 🙂 There is a surprising number of people who take this stance, even people who are supposedly in a position of leadership in the community.
I do have a small nit about this statement:
“Along these lines, it’s worth noting that Amazon will collect sales tax on your behalf by entering the tax settings when you list items for sale.”
This would tend to make the reader think that Amazon is the one that enters the tax settings – NO, this action is completed by the seller as he sets up his sales tax collection. And to further that discussion, it definitely is worth mentioning that you **must** have a Pro Selling account to have access to these tax settings and to collect sales tax.
I started off being quite certain I didn’t want to spend money on someone else “messing with” my sales tax. After all, I’m a professional, right? (This is a typical CPA-type response to any new tax situation.) Well, I took one look at the report Amazon generated for me and jumped right over to TaxJar. I have never looked back. While I am a tax professional, I have deliberately chosen to be a seller, and handling this responsibility myself would definitely take my time and attention away from selling. The great thing about TaxJar is that it is a continually improving service. Tax laws change, Amazon rules and procedures change, and seller needs change. TaxJar is on top of all of that. I just can’t say enough good things about TaxJar.
One final comment: I am sure you will get people talking about new legislation that is supposed to save us all from the tax monster, and using that hope to avoid doing anything at all. The proposed legislation is just that: proposed. Even if it actually passes, (which is completely debatable) the chance of it passing in its current iteration is virtually nil. We can’t count on something that may or may not happen in the future to protect us from the responsibilities we incur right now as sellers.
Glad you agree that the arguments are well laid out, especially since you are a CPA! You make a very valid point about the way I worded the tax collection, and that is necessary to have a pro seller account, thanks for pointing these issues out.
I agree with you on the new legislation as well, regardless of if something comes along, it doesn’t change what people need to be doing now.
Good article Ryan. Are you a CPA or a tax professional?
Thanks Dean, and I think you are likely joking, but just in case, I am neither.