Quick answer. Every US state with a sales and use tax has a marketplace facilitator law, and Amazon says all of them were in effect as of January 1, 2023. Under these laws Amazon calculates, collects and remits sales tax on orders shipped to those states, for every seller, wherever you are located and however much you sell. Amazon does not file your taxes. You can still owe state registration, gross receipts or business taxes, federal income tax, and sales tax on any sales made outside Amazon or into jurisdictions where marketplace collection does not apply. This article explains the published rules from Amazon and the tax authorities. It is not tax advice, and Amazon itself tells sellers to consult a tax professional.

Sales tax used to be the most confusing part of selling through FBA, because inventory placed in several fulfillment centers could create a filing duty in each of those states. Marketplace facilitator laws moved the collection duty for Amazon orders to Amazon, but they did not move every obligation. The rest of this article separates what Amazon handles from what stays with you, using Amazon’s help pages and the published guidance of the states and the IRS.

Why the 2021 Rules No Longer Describe Your Situation

Older guides on FBA sales tax were written while states were still adopting marketplace laws one at a time. Two changes ended that period. In South Dakota v. Wayfair, decided June 21, 2018, the Supreme Court overruled the physical presence rule of Quill Corp. v. North Dakota and upheld a South Dakota law that applied to out-of-state sellers delivering more than $100,000 of goods or services into the state, or making 200 or more separate transactions into the state, in a year. States then passed economic nexus laws for remote sellers and marketplace facilitator laws that made marketplaces like Amazon collect the tax on the sales they process.

Amazon states that by January 1, 2023, every US state with a sales and use tax had a marketplace facilitator law in effect. A guide that tells you to register in each FBA state and collect tax on your Amazon orders yourself describes a world that no longer exists for those orders. The obligations that remain are narrower, but they are real, and they differ by state.

What a marketplace facilitator is

Amazon defines a marketplace facilitator as a business that contracts with third-party sellers to facilitate sales through an online store, and states that Amazon is one. Amazon uses the term Marketplace Tax Collection, or MTC, for the state laws that make it responsible for collecting and remitting sales and use taxes, and in some cases regulatory fees, on products shipped to customers in jurisdictions that have enacted them.

Collection follows state law, not seller preference. Amazon has stated that sellers cannot opt out of marketplace collection. In your Seller Central order details, the tax collection model and the responsible party fields show which orders fall under it. When they read Marketplace Facilitator and Amazon Services, Inc., Amazon is responsible for the tax on that order. Jurisdictions with marketplace collection in effect appear greyed out in your tax collection settings, because your settings no longer apply there.

Who Is Responsible for What

The split is clean on the collection side and less clean on the reporting side. Amazon remits the tax it collected under MTC, so you do not pay that tax again. Whether you must still report those sales to a state, and whether a state taxes your gross receipts from them under a separate tax, depends on the state. Those are the questions to take to a tax professional with your Amazon reports in hand.

See also Amazon Permanent Deactivation and Amazon Product Safety Suspensions.

When the stakes are high, have our Amazon suspension team review your Amazon case before you respond.

Where Marketplace Collection Does Not Apply

Amazon lists exceptions where state marketplace laws do not reach. They include Colorado home rule cities that administer their own taxes, some Alaska cities and boroughs, rentals in Alabama and services in New York. In these cases the seller remains responsible for any tax due on the sale. Sellers who only ship physical goods to most states will rarely touch these exceptions, but a seller with inventory or customers in Colorado home rule cities or Alaska should check them by name.

Some fees attach to the buyer’s whole order rather than to a single item. Amazon gives the Colorado Retail Delivery Fee as an example and states that order-level fees of this kind are not shown in your order details or payment reports. Do not try to reconcile them against your item-level tax lines.

Marketplace collection also stops at the edge of Amazon. Sales through your own website, another marketplace that does not collect for you, wholesale orders, trade shows and direct invoices are outside Amazon’s MTC. If those sales reach a state’s economic nexus threshold, or you have physical presence in the state, the state may expect you to register, collect and file for them yourself. Thresholds and the way states count marketplace sales toward them vary, so read each state’s published rule rather than assuming South Dakota’s numbers apply everywhere.

How Amazon Decides What Is Taxable

Amazon says it uses the product category and item description you provide when you create a listing to determine whether tax or fees apply. When marketplace collection applies, your own tax settings and product tax codes are not used in Amazon’s calculation. That makes catalog accuracy part of tax compliance.

The practical risk sits in categories where states treat similar items differently, such as food and grocery items, clothing, dietary supplements, and items sold in bundles that mix taxable and exempt goods. A listing placed in the wrong category or described loosely can cause Amazon to charge tax that should not apply, or skip tax that should. Buyers notice the first error and complain. States notice the second. Correcting the category and description fixes the calculation going forward. Past orders are a matter between Amazon, the buyer and the state, and you should raise them with Amazon through Seller Support before you contact a state about them.

Marketplace Tax Collection Versus Tax Calculation Services

The two services sound similar and produce similar-looking lines in your reports, but the money flows in opposite directions.

• Marketplace Tax Collection. Amazon calculates, collects, remits and refunds the tax as the marketplace facilitator. The tax never becomes your money.
• Tax Calculation Services. An optional service for Professional sellers that calculates tax where MTC does not apply. Tax calculated through TCS is collected from the customer and disbursed to you, and you report and remit it to the state.

Sellers who used TCS before marketplace laws took effect sometimes keep old settings in place. In MTC jurisdictions those settings no longer drive the calculation. Where TCS still runs, the tax it collects is a liability you hold for the state, so it should sit in a separate account in your books and should not be treated as revenue.

For a closely related case, read Selling on Amazon Business.

What it looks like in your reports

Amazon shows marketplace-collected tax in your order details and payment reports with a reporting identifier, MarketplaceFacilitatorTax for US orders, along with a matching deduction. The tax appears as charged to the buyer and then withheld, so the net effect on your disbursement is zero. You do not remit tax that Amazon has collected and identified as MTC.

Amazon notes that if you remitted MTC tax to a state yourself as well, you need to work with your tax advisor or the state to determine refund options. Amazon cannot return tax it already remitted on your behalf, and a state that received the same tax twice will only refund it through its own process.

When we reconcile an account, we separate three streams in the payment data. The first is MTC tax with its matching deduction, which should net to zero. The second is TCS tax disbursed to the seller, which is a liability. The third is order-level fees that do not appear at all. A seller whose books treat all three the same way will either overstate revenue or overpay a state.

What You Still Owe at the State Level

Where your state exposure comes from

For an FBA seller, the states that matter are not only the states where buyers live. They are also the states where Amazon stores your inventory. Amazon decides where to place FBA units based on its own network, so a seller who ships one inbound shipment can end up with stock in fulfillment centers across several states within weeks. Inventory you own sitting in a state is a form of physical presence, and physical presence is the classic trigger for registration duties that economic thresholds do not change.

Marketplace laws take the collection duty for Amazon orders off your hands, but the presence question still matters in three places. It matters for states that require registration from sellers with physical presence even when a facilitator collects the tax. It matters for gross receipts and business taxes that marketplace laws do not touch. And it matters for any sales you make in that state outside Amazon, which you must collect on yourself once you have presence there.

Your FBA inventory reports show the fulfillment center locations holding your units over time. Keep a monthly snapshot. When a tax professional asks which states you had presence in during a year, that record is the answer, and it is hard to rebuild later.

States answer the remaining questions differently, and the differences are large enough that one rule cannot cover them. Two published examples show the range.

A state with a gross receipts tax

Washington’s Department of Revenue tells marketplace sellers that if a facilitator collects sales tax on their behalf and they have proof, they do not need to collect or remit it themselves. It also says marketplace sellers that meet a registration threshold still file and pay business and occupation tax and other taxes. Remote sellers must register when they have more than $100,000 in combined gross receipts sourced or attributed to Washington, and sellers with physical presence in the state must register even below that threshold. The department tells sellers to report gross marketplace and direct Washington retail sales under Retailing B&O and take a deduction for sales where the facilitator collected the tax. Inventory stored in a Washington fulfillment center is the kind of physical presence that question turns on.

A state that relieves marketplace-only sellers

The Texas Comptroller says remote sellers that sell only through a marketplace provider that has certified it will collect the tax are not required to hold a Texas sales tax permit. A seller based in Texas still needs a permit. Sellers relying on that relief must keep records of their marketplace sales for at least four years. A remote seller who also sells into Texas through its own website is no longer a marketplace-only seller.

Between these two models sit the rest of the states, with their own registration rules, filing frequencies and treatment of marketplace sales. Use Amazon’s reports to show which of your sales were marketplace facilitated, then have your tax professional map each state where you hold inventory or exceed a threshold against that state’s published rule.

Income and franchise taxes

Marketplace laws cover sales and use tax only. State income taxes, franchise taxes and gross receipts taxes are separate, and holding inventory in a state can bear on whether those taxes reach your business. Amazon’s tax policies state that the seller remains responsible for income and gross receipts taxes. The answer depends on your entity type and each state’s rules, which is why Amazon directs sellers to a tax professional.

Federal Income Tax and Form 1099-K

Amazon is a third-party settlement organization for federal reporting, and US sellers who cross the reporting threshold receive Form 1099-K. The IRS says the One, Big, Beautiful Bill retroactively reinstated the threshold in effect before the American Rescue Plan Act of 2021, so a third-party settlement organization files Form 1099-K only when gross reportable payments to a payee exceed $20,000 and the number of transactions exceeds 200. The form is an information return. Your business income is reportable whether or not you receive one.

Form 1099-K reports gross payment amounts. The IRS says the Box 1a gross amount is not adjusted for fees, credits, refunds, shipping, discounts or cash equivalents, and that you can deduct those items from it, so the figure will not match your net disbursements or your profit. Reconcile it against your payment reports instead of copying it onto a return.

Amazon asks every seller to complete a tax interview, which collects the taxpayer identification details Amazon needs for these information returns. The IRS requires payers to apply backup withholding at 24 percent when a payee fails to provide a correct taxpayer identification number, and lists Form 1099-K payments among the payments subject to it. A name and TIN mismatch in the tax interview is a disbursement problem as well as a tax problem, so check that the legal name and number match IRS records exactly.

Sellers Outside the US and Selling Outside the US

Amazon states that US marketplace collection follows the rules where the buyer is located, so it applies to sellers based outside the US and to products shipped from outside the US. A seller in China, the UK or Canada shipping to a US buyer has Amazon collect the US sales tax on the same terms as a US seller.

Amazon also collects comparable taxes in other countries, including Mexico, Australia and New Zealand, under its Marketplace Withheld Tax rules. Each country sets its own scope, and the reporting lines differ from the US identifier.

United Kingdom

HMRC guidance says an online marketplace is liable for VAT on consignments of £135 or less sold to customers in Great Britain, and on goods of any value located in the UK at the point of sale when an overseas business sells them through the marketplace. A UK-established seller selling goods already in the UK remains responsible for its own VAT.

European Union

EU VAT law treats an electronic interface such as a marketplace as the deemed supplier in two cases. The first is distance sales of imported goods in consignments of no more than EUR 150. The second is supplies of goods within the EU by a seller not established in the EU. Outside those cases, the seller keeps its own VAT obligations, which differ by member state.

State Notices and Older Periods

When a state sends you a notice

States match data from marketplaces against their own registrations, and a seller can receive a letter asking about sales that Amazon already taxed. Most of these letters ask for information before they assess anything. Treat the response as a records exercise.

1. Read the notice for the period, the tax type and the response date. A letter about sales tax needs a different answer from a letter about gross receipts or business tax.
2. Pull Amazon’s payment and tax reports for the period and filter them to orders shipped into that state.
3. Separate orders where the tax collection responsible party is Amazon from any orders where it is not, and total each group.
4. Add any non-Amazon sales into the state for the same period from your other channels.
5. Have your tax professional answer the state with these totals, showing that marketplace-facilitated sales were taxed by Amazon and addressing the rest.

Do not ignore the letter because Amazon collected the tax. A state that hears nothing back may assess on estimates, and a marketplace seller who meets that state’s registration threshold may owe filings even when no sales tax is due. Washington’s guidance, for example, tells marketplace sellers to use the facilitator’s monthly report to calculate their business and occupation tax.

New sellers versus sellers with history

A seller who started on Amazon after January 1, 2023 has a simpler record. Every Amazon order into a state with a sales and use tax has fallen under marketplace collection from the first day, apart from Amazon’s listed exceptions. The work for a new seller is to set up clean books from the start, track FBA inventory locations, keep non-Amazon sales separate, and register only where a state’s own rules require it.

A seller with history before that date has an older question to settle. During the years when states adopted marketplace laws at different times, some Amazon orders were the seller’s responsibility. If you collected tax through TCS in that period, you should have remitted it. If you held inventory in a state before its marketplace law took effect and did not register, the state may still treat that period as open. Amazon’s reports for the older periods show which orders it taxed and which it did not. A tax professional can tell you whether a state offers a voluntary disclosure route for any open period, which is usually better than waiting for the state to find it.

Sellers who bought an existing Amazon business should ask the same questions about the account’s history before closing. Tax exposure from earlier years can follow the business, and the seller’s records are the only way to measure it.

Mistakes That Create Tax Problems

• Remitting MTC tax to a state a second time because the payment report showed tax collected.
• Booking TCS collections as sales revenue instead of a liability owed to the state.
• Assuming marketplace collection covers sales made on your own website or through wholesale channels.
• Ignoring state registration or gross receipts tax rules in states where FBA stores your inventory.
• Leaving products in broad or wrong categories, which changes how Amazon decides taxability.
• Using an old tax interview with a business name or TIN that no longer matches IRS records.
• Following pre-2023 guides that tell you to collect sales tax on Amazon orders in states where Amazon now collects.

Practical Steps for Sellers

1. Confirm your tax interview in Seller Central shows the correct legal name, entity type and taxpayer identification number.
2. Review product categories and item descriptions for your top ASINs, since Amazon uses them to determine taxability.
3. Download your payment reports and the tax reports in Seller Central each month, and separate MTC amounts from TCS amounts and from your own channel sales.
4. List every state where FBA stores your inventory, using your inventory reports, and every state where your non-Amazon sales may cross a threshold.
5. Have a tax professional check each listed state’s registration, reporting and gross receipts rules against your data.
6. Keep marketplace sales records for at least the longest period any of your states requires. Texas, for one, requires four years for sellers relying on marketplace relief.
7. Reconcile Form 1099-K against your own sales, refunds and fees before you file income tax returns.

Our Amazon inventory reconciliation service helps sellers reconcile their Amazon records. For FBA basics, read facts you need to know about FBA.

Frequently Asked Questions

Does Amazon collect sales tax for third-party sellers?

Yes, in every jurisdiction with a marketplace facilitator law. Amazon says all US states with a sales and use tax had such laws in effect by January 1, 2023, with limited exceptions such as Colorado home rule cities and some Alaska localities.

Do I still need to file sales tax returns?

It depends on the state. Amazon does not file on your behalf and says you may still have reporting obligations. Washington, for example, requires marketplace sellers that meet its threshold to file and pay B&O tax, while Texas relieves remote sellers that sell only through a certified marketplace from holding a permit.

Does marketplace tax collection apply to sellers outside the US?

Yes. Amazon says US marketplace collection is based on where the buyer is located, so it applies to sellers and products from outside the US.

What happens if I remitted tax Amazon already collected?

Amazon says to work with your tax advisor or the state to determine refund options. Amazon cannot return tax it has already remitted.

Is Tax Calculation Services the same as marketplace collection?

No. With TCS, the tax is disbursed to you and you remit it. With MTC, Amazon remits it and the tax never reaches your account.

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Sources

• Amazon Seller Central, US Marketplace Tax and Regulatory Fee Collection FAQ
• Amazon Seller Central, Marketplace Withheld Tax
• Amazon Seller Central, Tax policies
• Amazon Seller Forums, Amazon news post, Marketplace Tax Collection overview in the US
• Legal Information Institute, South Dakota v. Wayfair, Inc., 585 U.S. (2018)
• Washington Department of Revenue, Marketplace sellers
• Texas Comptroller of Public Accounts, Marketplace providers and marketplace sellers
• IRS, FAQs on Form 1099-K threshold under the One, Big, Beautiful Bill
• IRS, What to do with Form 1099-K
• IRS, Understanding your Form 1099-K
• IRS, Backup withholding
• GOV.UK, VAT and overseas goods sold to customers in the UK using online marketplaces
• EUR-Lex, Council Directive (EU) 2017/2455