Most sellers are familiar with the sales tax regardless of which marketplace they choose to promote their products. However, Amazon seller tax can be a complicated thing to understand. Most of the laws are pretty complex and can determine the rate at which your business will grow.
If you are a seller on Amazon, you will probably be interested in getting and filing tax. The best way to achieve this is by comprehending the nature of Amazon FBA taxes and how Amazon charges them. So, it’s also great to look at how to collect sales tax on Amazon.
Understanding the Amazon tax
An agreement with all businessmen on Amazon is established prior to enabling them to tax the product their customers buy from them. The tax collected on an Amazon seller’s products in the US, for example, is determined by the destination of the package.
Each state is unique in terms of how much they allow the seller to collect from potential customers. For this reason, you will be required to understand such differences before reaching out to customers beyond your state.
If you desire to tax your products, Amazon can allow you to do so if you meet two criteria:
- You have to find a way to get a sales connection in a state other than yours.
- You should have general knowledge about how taxable your products are.
The only way you can identify an opportunity to collect taxes on your products is by understanding the two criteria mentioned above. Let us look at each in more detail.
Getting a sales tax connection
Having a connection in one state or more is proof that you can tax products sold to customers living within its borders.
Sellers on Amazon already have the right to charge tax on the products they sell in their states. Certain facts have to be kept in mind before you can charge tax on goods leaving your state. Some of the important requirements are listed below:
- Start doing your business on location instead of only focusing on the online platform;
- Hire a workforce to represent you in your absence;
- Hire an individual or individuals who can help you reach bigger audiences;
- Drop shipping in that state can also help you create the connection that will enable you to charge tax;
- Using storage facilities in states of interest – this will significantly increase your chances of getting taxing rights.
All the points listed above will enable any seller to get the ability to tax their products in various states. The last point on the list is probably the most effective, especially when we consider FBA sellers on Amazon.
The majority of states have tax laws showing that having some inventory gives you a power to tax your goods. These states acknowledge all online businesses with inventory within their boundaries.
In a nutshell, the most effective way to get this privilege is by simply keeping some of your product in warehouses, stores, etc., within their state lines. You basically get an automatic approval just by doing so.
Amazon has the ability to help you keep some of your products in numerous states. Usually, all states with Amazon fulfillment centers will permit inventory storage. However, there are a few distinct cases that do not, such as the tax laws present in the state of New York.
The state mentioned above does not award the ability to collect tax simply because of the involvement of a third-party. Arizona also has laws that are not specific enough, so Amazon FBA tax collection is unclear in Arizona. The reason for this not complex at all, it is simply due to the fact that FBA remains unrecognized in their laws.
Taxation of products
Sales tax for Amazon FBA sellers is a reward that many business people working on Amazon are looking for to generate extra income. This extra money is generated when they charge tax for the product they provide. You have to remember you cannot tax every kind of product you sell.
In most cases, all states tax tangible products, while intangible ones remain untaxed. Although this might be the accepted general rule, several exceptions may occur. For example, certain products like groceries, articles of clothing and school supplies like textbooks can be left untaxed in some states.
In some states like Tennessee, the above group of goods is not necessarily untaxed. The sales laws tax these products but they do so at a low rate. This is just an example of a state that does not follow such laws; remember that most states tax all tangible products.
The easy way to get your sales tax
The entire process of tax collection is a complicated one as we have already pointed out. For individuals selling on Amazon, sales tax on the products they sell to individuals in both their state and others can be collected the following way:
- First, identify the taxability of your product in various states around the country;
- Another very important step is registration. The registration simply offers you a good opportunity on Amazon, especially when it comes to product tax. You can register in several states;
- You have to come up with a plan that will help you collect the tax. For Amazon sellers, the main method is through the business they run online;
- Remember that all your business records are important, so try to keep all of them just in case agencies want to look at them in the future;
- It is imperative that you send all your records to the tax agency of your state;
- You probably have some questions on how numbers are derived – this is the role of Amazon tax calculator, it’s designed to make all the difficult calculations.
Reporting and collecting sales
In order for a seller on Amazon to be able to collect tax from their customers they have to go through the following process:
- Make access to the Amazon Seller Central;
- Go to the setting option and access drop-down menu;
- They can then see the option that allows them to make the necessary change to tax collection and more.
You can also figure out the best possible states in which you would like to collect the taxes. Having a valid registration is more than enough to show Amazon that you are eligible to tax your products.
Record keeping is very important in business. Therefore, make sure you keep records and submit the reports after a particular period of time. Most of the agencies are very interested in how much tax you charge customers in your state and other states around you.
You can find the necessary information by using Amazon tools that will help you get a copy of the report you create. Amazon will help you generate a report by tracking all your business platforms and not just the one on Amazon. It will create a simple report and you can use this to present to your collection agencies.
Another important process of getting sales tax from your customers is having the ability to file all your tax returns. Filing these records is not a difficult process and can be done in two ways. In the first, you will be required to do it online with a website that belongs to the taxation authority residing in your state. The next solution enables you to use software that keeps all your returns tracked.
Getting tax on Amazon
Sellers can begin to charge and collect Amazon FBA and sales tax from their clients after figuring the previous points first. Amazon has made it easier to collect the tax by providing a service designed for the sole purpose of making it possible for you.
It quickly provides you with a solution after you indicate what products you want to tax. The feature that makes it an effective and reliable tool is its speed. It does not use various data from states which can complicate your decision making.
Another key feature of this tool is that it permits sellers on Amazon to add tax codes for their products. This allows them to be able to charge the best possible rate of tax on certain products like articles of clothing. It also plays a key role in helping to decide on charging tax for services that enable you to fulfil orders.
Handling the management of sales tax on Amazon can be quite a challenge. Luckily we have looked at some of the most encountered challenges and provided solutions to them.
At AMZ-Expert, we are prepared to offer you a professional service that will allow you to easily deal with your sales taxes. We can help you understand the nature of Amazon and FBA sales tax from questions like how does Amazon calculate sales tax, to going through the process of getting you registered in various states.