Amazon is tasked with collecting and remitting sales tax on behalf of its sellers. This includes transactions where the marketplace adds the tax to each sale, with Amazon then managing the funds appropriately.
Determining Sales Tax Nexus
When it comes to sales tax collection, it often depends on nexus, which is a term referring to a business having a substantial connection to a state. This connection can stem from a variety of factors including a physical presence or meeting a minimum sales threshold within that state.
Sellers must be aware of the sales volume and specific state laws to ascertain their obligation to collect sales tax as part of the Fulfillment by Amazon (FBA) program.
Amazon’s Role and Seller Responsibilities
Amazon has implemented services to assist sellers in tracking and managing tax-related matters, ensuring that sellers maintain compliance with tax laws. Moreover, Amazon automates the sales tax collection process for Professional Seller accounts, simplifying the responsibilities for sellers. Nevertheless, these sellers are also required to possess a sales tax permit and file tax returns if they have a nexus in particular states.
Payment and Reporting
Amazon will distribute 1099-K forms to those who earn above $600 in sales by the close of 2023, regardless of the number of transactions. For Professional sellers, Amazon provides access to Marketplace Tax Collection amounts rather than full sales tax reporting.
Sellers should be aware that income tax on profits from selling on Amazon is also payable, and they need to calculate sales tax for each state they ship orders to, considering that sales tax can vary from state to state.
Amazon’s Collection and Remittance of Sales Tax
Amazon is currently mandated to collect and remit sales tax on behalf of sellers within states that enforce Marketplace Facilitator laws, shifting the tax collection burden from the individual merchant to Amazon itself.
History of Amazon’s Sales Tax
Amazon started charging sales tax in April 2017 in most states, exempting those without a sales tax law. In the European Union, Amazon began collecting VAT in 2015. Initially, Amazon only collected sales taxes from a few states, but that has since expanded significantly.
Sellers need to ensure they are in compliance with the tax laws by obtaining a sales tax permit and filing returns in states where they have a nexus. With Amazon’s automatic tax collection, the complexity of sales tax management is alleviated to a certain extent for sellers.