Haha! Did you think sales tax would get easier after 2020? Well, joke’s on you!
It’s 2021, many things have changed, Jeff Bezos is no longer Amazon’s CEO.
However, one thing has not changed: taxes. Amazon FBA sellers still need to deal with taxes, just like the year before, and the year before, and, well, always!
You just can’t get around taxes, especially sales tax, unless you do things legally.
Amazon is one of the largest platforms in ecommerce, and the ability to sell a large variety of products to an even large customer base is what attracts so many sellers to Amazon. However, just like any business, Amazon sellers are also bound to taxes, and in this case to what we call a sales tax nexus.
What is Sales Tax Nexus?
Sales tax nexus is basically an umbilical chord between a state and a business. It essentially connects your business to a state. Wherever you hold a sales tax nexus, or “trigger” a sales tax nexus, you are required to collect sales tax from your customers. A lot of things can trigger a sales tax nexus for a retailer and basically establish a connection between your business and a state. This could be anything from the geographical location of your business, which could be a physical or virtual office, having employees in a particular location, a warehouse or some sort of affiliate. Back in the day, things used to be different for ecommerce businesses that did not have a physical location. But things changed after a bill was passed, requiring ecommerce businesses to abide by sales tax laws just like any other business.
If your business is located in a state where sales tax is required, the sales tax collection process depends on various things:
The category of products and services you are selling. Some products are tax exempt in certain states, whereas the opposite in other states. Moreover, the amount of tax that is going to be collected is also important, so is the frequency of your tax files. Some states will need sales tax remission every two years.
If a sales tax nexus is present in any state, then you will be required to collect sales tax.
Let’s try to figure out what changed in 2021 in terms of sales tax, and Amazon. For the purposes of this blog, we are focusing on FBA Amazon sales tax.
Do I Collect Sales Tax or Does Amazon Do It For Me?
March is literally right around the corner, and we all know what that means: it’s tax season! If you own any sort of business, in this case a business on Amazon, you are required to file your taxes by the end of March 15, 2021. As for your own, personals taxes, April is right around the bend as well!
If you are an Amazon seller who has been around the block, you probably already know this. However, if you’re new to town, you should know that per Amazon FBA sales tax laws, Amazon now collects sales taxes on your behalf in pretty every state. However, there’s a catch! It only collects sales tax in states it has fulfillment centers in. There’s also…another catch! For every transaction, Amazon charges you 2.9% each time it collects sales tax.
There are also states which do not need Amazon to collect the sales tax on behalf of the seller. Let’s talk about those a bit.
If you are registered to collect sales tax, you first need to make sure that the sales tax you are collecting, is taken from your Amazon FBA customers.
There’s some good news: Amazon has devised a system which makes it relatively easy to collect sales tax. You can pretty much direct it to collect what you want it to collect, and to also calculate if a particular sales tax rate has changed.
You could always choose not to collect any sales tax from your Amazon customers, and opt for paying from your own pocket, which is the profit you get from Amazon sales. However, as the more perceptive of you have realized, this is not the best option!
How Does Sales Tax Collection Work on Amazon FBA?
The first thing you need to is, of course, logging into your Amazon Seller Central account. Then, hover over and click on “Settings.” When the drop down menu drops down, chose “Tax Settings.” The next option should be easy to see. It’s called: “View/Edit your Tax Collection and Shipping & Handling and Giftwrap Tax Obligations Settings.”
This is where you decide the states you want to collect sales tax in, as well as the country or local level tax collections. Amazon gives you a customization option as well to collect sales tax, but we’d stay away from that because sales taxes are like the staircases in Hogwarts from Harry Potter. They tend to change.
Generally speaking, we understand that sales tax and collecting sales tax can be tricky subjects and can often confuse sellers. That’s why it is always best to consult tax professionals who will help you collect sales tax when and if necessary. We have partners whose skills and experience you can leverage for your business. They will not only help you collect sales tax, but also help you with tax exemption and myriad of other tax-related services.
In the meantime, we will help you create a strong business on Amazon that is guaranteed to success, while fully protecting your investment!