Amazon FBA sellers have a complicated relationship with sales tax. Most states with Amazon fulfillment centers consider housing inventory in their state to create “sales tax nexus.” Sales tax nexus is just a legalese way of saying “significant presence” in a state and it means that you need to collect sales tax from buyers in that state.
In other words, if you sell on Amazon, you may find that you have sales tax nexus in many or all of the states with Amazon Fulfillment Centers.
But it doesn’t have to be as hard as it sounds! Just follow these 5 steps and you’ll be mastering sales tax in no time:
Step 1: Determine Where You Have Nexus
Like I mentioned above, you only have to charge sales tax to buyers in states where you have “sales tax nexus.”
To find out where Amazon stores your products you can run and Inventory Event Detail Report.
Here are a few things, aside from storing inventory in a warehouse, that create nexus in a state:
–You live there – you’ll always have home state nexus
–A location – you have a store, office, warehouse, factory or other location
-Personnel – you have an employee, contractor, sales person, installer or other person physically doing business on behalf of your company there
-A drop shipping relationship with someone in the state
-A 3rd party affiliate in the state
If you do have sales tax nexus in a state, then your next step is to…
Step 2: Register for a Sales Tax Permit
States require you to register for a sales tax permit before you begin collecting sales tax from buyers in that state. Don’t skip this step! Many states consider it unlawful to collect sales tax before you’re obtained your license.
When you register, your state will assign you a filing frequency – usually monthly, quarterly or annually. Note down those due dates because you’ll need them later.
Here’s a list of how to register for a sales tax permit in every state.
Note: Often, if you are a remote seller (i.e. not based in that state) you’re sales tax permit will be called a “use tax permit.”
Step 3: Collect Sales Tax from Buyers
Once you’ve determined you have nexus and secured your sales tax permit, your next step is to ensure you’re collecting sales tax from customers.
Amazon FBA does a great job of collecting sales tax for you, but it can be a little tricky to get set up with the correct settings. For that reason, we’ve put together an FBA Sales Tax Guide with step-by-step instructions to getting set up.
Multi-channel sellers should also keep in mind that once you have sales tax nexus in a state, you are required to collect sales tax from buyers in that state through all channels on which you sell. You can find guides to setting up sales tax collection on the most popular channels here.
Step 4: Report How Much Sales Tax You’ve Collected
So you’ve been collecting sales tax and now your sales tax filing due date is swiftly approaching. Your next step is to report how much sales tax you’ve collected on each channel in each state.
This is where things start to get tricky. A few states are simple, but the vast majority of states want you to break down how much sales tax you’ve collected not just by state, but by state, county, city and special taxing jurisdiction within the state. If you sell on multiple channels, this gets confusing, too. Before sales tax automation came along, many sellers found themselves wrestling with spreadsheets and state taxing tables. This usually took about 5 hours per state.
There are service providers that will integrate with the platforms on which you sell and create return-ready reports (broken down by county, city, and any other info the state wants to see) and deliver you a return-ready report. You’re all set to file!
Step 5: File a Sales Tax Return
Your next step is to file your sales tax return. If you use a service provider, it’s as easy as using your state-level report to fill out the sales tax return. Or, if you’d rather automate the entire process, they’ll AutoFile for you in almost every state.
There are a couple of important things to remember about filing a sales tax return
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.
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.
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 a service provider – we’ll put your sales tax discount right back into your pocket!
Bonus Step: Relax!
You’ve handled sales tax and can get back to doing what you do best – running your business!
Author: Mark Faggiano, CEO