Every business owner knows Amazon. Millions of business owners use Amazon. Not many business owners understand how Amazon affects the whole US sales tax situation. You know, the legal obligation to collect taxes from buyers and pay it to the state governments, on time or else.
This is a problem. Because the American state governments are rapidly implementing new and extensive tax laws that apply to marketplace facilitators, like Amazon, and remote sellers, like you.
Here you’ll find all the information you need about how using Fulfillment by Amazon impacts your US sales tax obligations.
What is Amazon FBA and how does it work in the US?
Fulfillment by Amazon is a service Amazon provides its sellers, to take over product storage, distribution, and delivery. As a business owner and Amazon seller, once you sign up for FBA, you ship and track your shipments to Amazon fulfillment centers. Amazon's online seller tools help you through the process.
Amazon Prime customers get super fast, free shipping on your products, and all other customers can often quality for free shipping, too, which makes your products more competitive. Amazon fills those orders and sends tracking information directly to the buyer.
Not only that, Amazon FBA provides all of your customer support, such as buyer inquiries, refunds, and returns.
Pro tip: You should stay aware of which FBA centers are housing and sorting your merchandise. Because this triggers sales tax nexus for your business.
Where are the Amazon fulfillment centers in the US?
There are well over 100 Amazon FBA warehouses in the United States, located across the country. The following states have at least one Amazon fulfillment center:
Arizona, California, Colorado, Connecticut, Delaware*, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire*, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin.
*These states actually don’t collect sales tax. So although some of your merchandise may be stored here and sold here, it won’t trigger nexus. :)
How do you comply with US sales tax using Amazon FBA?
US sales tax is not a nationwide policy, such as VAT throughout the European Union or GST in Australia. Rather than administered on a federal level, US sales tax exists at the state and local levels. States and local jurisdictions have the power to set their own tax laws and tax rates.
45 states and the District of Columbia collect statewide sales taxes. (Alaska, Delaware, Montana, New Hampshire, Oregon do not have any sales tax at all!)
38 states have some form of local sales tax, collected in part or all of the state.
As a result, there are thousands of tax jurisdictions in the United States! Within those states and local jurisdictions, there are several other factors that determine whether your business is liable or not — which is to say, whether your business has nexus. If you don’t know about sales tax nexus yet, take a quick moment to read our Guide to US Sales Tax Nexus.
Once you know where your business has nexus, there are three basic steps to complying with US sales tax. And your Amazon FBA account can help you with a little of it.
1. Register for a sales tax permit in that state. You must register for each state’s tax system individually. You should visit the state’s Department of Revenue website, which you can find on this helpful directory from the IRS. Another option is to register for the SSUTA states at once, using a simple (and free) online application through the Streamlined Sales Tax Registration System (SSTRS). You can pick and choose which of the 24 states are relevant to your business.
2. Charge sales tax to customers in that state. This includes the overall state tax rate, plus any county or district taxes that apply. Not every state has local-level taxes, though. Usually the tax rate is based on where the customer is located, a destination-based tax. Only a few states have origin-based taxes, meaning you charge tax according to wherever your business is based. Read more about origin and destination-based sales taxes.
You need to set up each of these manually in Amazon Seller Central. Only once you configure your account to collect these taxes, then Amazon will do it for you.
3. File sales tax returns in that state. When you register, each state will assign you a filing frequency. It could be once a month, once a quarter, or once a year. Be sure to note your deadlines and pay on time to avoid penalties. Again, check the individual states’ official websites for specific information on how to file.
But there’s a huge, and growing, exception to all of the above! And that’s when a state has a “marketplace facilitator law.”
What are US marketplace facilitator laws?
Marketplace facilitator laws are tax policies that require online marketplaces, such as Amazon, eBay, or Etsy, to collect and remit sales tax on behalf of all their merchants (i.e.- on your behalf!).
These laws are designed to simplify the state’s process for recouping as much sales tax as possible. Obviously it’s much easier to make Amazon, a single entity, responsible for the tax from all the sales on its platform, rather than to chase up each individual Amazon seller.
As for you, this means that in the “marketplace facilitator” states where you have nexus, you don’t need to worry about tax for any sales you make via Amazon. The marketplace is responsible for charging, collecting, and remitting that tax money.
But you are still responsible for collecting tax on sales made through other channels and avenues in the state. And you’re likely still expected to maintain a valid tax permit for as long as you have nexus there, even if you only make sales on Amazon and never collect sales tax yourself.
Marketplace facilitator laws are cropping up fast and rapidly covering the map. The following states currently have versions of a marketplace facilitator tax policy already in place or in the works (but given how quickly these laws are developing, this list may not be fully up to date!):
Alabama, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, Virginia, and Washington.
The key word there is “versions.” Not all marketplace facilitator policies are the same. Each state has its own nuance. For example, while you don’t have to manage the tax collection on your Amazon sales, you may still have some tax reporting duties in some states.
What can help you handle US sales taxes with Amazon FBA?
Once you have nexus and are registered for sales tax in more than one state, things can get really confusing.
While Amazon helps you fulfill your orders to customers, it does not necessarily help you fulfill all of these tax obligations. Even in states that have marketplace facilitator laws!
Where Amazon’s service stops, Quaderno takes over. The Quaderno integration with Amazon FBA will seamlessly handle all the following US sales tax sticking points:
Automatic sales tax calculation and collection. Quaderno charges the correct amount of sales tax, based on the ship-from or ship-to location.
Automatic tax-compliant receipts, fully customized. Amazon’s receipts don’t allow you to customize the tax information that laws require. Quaderno includes all necessary tax info. Plus it sends receipts, credit notes, and invoices automatically – and keeps all your records straight.
Automatic threshold notifications. While Amazon FBA doesn’t monitor any economic nexus thresholds for you, Quaderno automatically tracks your annual sales and tax thresholds in every state.
Instant tax reports for easy filing. In the click of a button, Quaderno provides you with a full tax report for each state where you have a tax permit. Before you file any tax return, use Quaderno’s instant reports to have all the necessary info at a glance. This makes things so much easier, when you have several different nexus and state tax registrations going at once!
And another great thing? Connecting Quaderno with your Amazon account only takes a minute. Give us a try with a seven-day free trial.
* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.