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The Business Side of Amazon FBA: Registering a Business and Sales Tax

I registered with my state as a sole proprietor as a first step in complying with the sales tax requirements that is required when selling goods online.  I live in Washington and the following statement is taken directly from the Washington State Department of Revenue’s website in their “Online Sale of Goods” section:

  • Individuals routinely making retail sales through online auctions or marketplaces are considered engaging in business and are required to register with the Department of Revenue and collect retail sales tax on sales to Washington customers.

Unfortunately for those selling through the Amazon FBA program, collecting sales tax is more complicated than just collecting sales tax for purchases made in your home state.  We have nexus (a business presence) in the states that our inventory is stored in.  The FBA Sales Tax Guide  and the TaxJar website are good places to learn more about the sales tax requirements that people selling online with Amazon FBA face.

Please keep in mind while you are reading this post that I am not a professional tax consultant or a legal advisor.  I am a person in the process of figuring this all out and am doing what I believe should be done so that I don’t get in trouble with the tax authorities.  Also, I have no desire to pay the sales tax out of my own pocket to the different states because I didn’t collect it from the buyer.

The way that I will collect the sales tax is through Amazon’s sales tax collection service.  With this service, they collect the sales tax from the buyers and pass along the tax to the sellers.  They charge 2.9% of the tax collected for this service.  But before they will do this, you need to provide them with your state registration number for the states that you want them to collect sales tax in.  This means that you need to register for a sales tax license in each of the states that you have nexus in.

I live in Washington and they do not give state registration numbers and sales tax licenses to individuals (at least from what I can tell from their website).  Therefore, I had to start a business.  In doing so, I had to come up with a DBA name and choose my business structure.  I chose the sole proprietor business structure as it is the simplest one to form and the least expensive. The process of signing up as a sole proprietor was simple – fill out an online application and pay the state $24.00.

I was tempted to start a LLC business structure for the personal liability protection that it offers and to avoid the process of changing my business structure later.  But I chose not to do so at this point because it seemed like overkill for the few items that I currently have listed on Amazon. Later on down the road if my Amazon FBA business takes off, then I will talk with my accountant about changing to a LLC.   You can learn more about the different business structures through the the SBA website.

After I formed my business, I went to the IRS website and obtained an Employee Identification Number.  Since I am a sole proprietor without employees, this step wasn’t necessary but I did so to avoid giving out my social security number in case I need to apply for anything that requires a SSN or EIN.  It’s free to get one and it only took a few minutes to do.

Then I designated one of my several checking accounts that I accumulated over the years as my new business account.  Technically it is a personal checking account that I will now use only for Amazon FBA.  Having a separate account will help me keep track of my income and expenses and will help me stick to my budget.  (Oct 2014 update: I opened a business checking account to be used for FBA only). As mentioned in my post, Amazon FBA: Goals and Action Plan, I will contribute $100.00 per month of my personal funds towards my Amazon business until I can support it through my profits.  By only keeping a set amount in that checking account, I won’t be going over budget.

The last two items that I did was changing my tax settings so that Amazon collects sales tax for me in Washington State and signing up for my free month of TaxJar.  I jumped the gun on TaxJar and wish that I waited until I had a sale that sales tax needs to be collected on.  My initial thoughts on TaxJar is that they have a simple to use interface and they simplify the tax collection process for sellers.   However, it is another $9.95 per month expense after the first month – most likely I will continue their service after my 30 day trial period ends.  The good thing is that I now have a reseller’s permit so I don’t have to pay sales tax when I purchase inventory.  My sales tax savings will offset the cost of TaxJar.

My next steps are to register for tax licenses in the other states that I have nexus in.

Again, I repeat, I am not a tax or legal professional.

Please feel free to comment below and let me know what you are doing in terms of setting up your business.  Also, if I provided any incorrect information in my post, please let me know.

Photo Credit: © Timothy Masters – Fotolia.com

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{ 34 comments… add one }
  • GS September 15, 2014, 10:07 pm

    Hi Diana, I’m still learning about FBA and found your blog to be very helpful for a new person. I really liked this post since it is hard to find tax information. I have aquestion…how did you get a reseller’s permit. Did you just get it when you applied for DBA or there was some other procedure? Thanks

    Reply
    • Diana September 16, 2014, 1:50 am

      I would start by signing up for Amazon, get a few shipments to them and then if FBA is something that you are truly interested in, then start by registering in your home state and then work on the other states.

      To register for a resale certificate, you need to go to the Dept of Revenue’s website for the state that you live in. I live in Washington, so that is where I signed up to be a sole proprietor also. For Washington, getting the DBA and resellers permit was pretty much the same step.

      Then later, I went to the Dept of Revenue’s website for the other states that I have nexus and and registered for resale certificates there also.

      There’s a lot to learn and please let me know if you have more questions. But sign up for FBA, then work on your home state next. Then work on the rest of the states over the next couple of months if FBA is something you want to continue.

      Diana

      Reply
  • DS September 15, 2014, 10:12 pm

    Diana, I have not sent in anything to Amazon yet. I kind of find it hard to figure out wher to start. would be able to email me instructions on what step I should take first for example register as business etc. Thanks

    Reply
  • Suzy January 27, 2015, 4:42 am

    I found your blog yesterday and decided to start from your first post instead of reading backwards. The previous post, I was thinking, “I wonder if she lives in WA?” The very next post…. Washington it is! I live in Vancouver. Hello Neighbor!!!!!!!!!!

    I too have not sent any items yet and wanted to read up on steps so this is fabulous! Thank you.

    Reply
    • Diana January 27, 2015, 2:30 pm

      Hi Suzy, wow, we are very close neighbors as I live in Vancouver too! It does make it nice because Portland is so close for the zero sales tax. But I’m slowly figuring out which Washington stores are easier to not pay sales tax in. So I’m shopping in Vancouver more often now. Sounds like you’re just starting out with FBA. Let me know if you have any questions! Diana

      Reply
  • Suzy January 28, 2015, 5:10 am

    Thank Diana,

    Sure is a small world. If I could stay in Vancouver, I would. I remember when I first moved to the area and I said “Why would you not drive the 5 miles to PDX to save on sales tax?!?” Obviously a very dumb question….. I actually work in PDX so I do cross the bridge everyday. 🙁 Are you able to pay zero tax in WA because of your biz license?

    Have a great night. Thanks for the comment back. 🙂

    Reply
    • Diana January 28, 2015, 2:32 pm

      Yes, because of the business license. I just signed up with Costco yesterday so I don’t have to pay tax there anymore. I used to work in Portland, but now in Vancouver and try to avoid going to Portland as much as I can other than Jantzen Beach or stores by the airport – Target& Ikea area. Unfortunately, I get very bad cell phone reception there and can’t scan. Maybe because of airport towers? Who knows. Have a great day at work and hope bridge traffic isn’t too bad today.

      Reply
  • Linda March 11, 2015, 4:21 am

    Hello Dian,
    I’m just starting out with fba after signing up I came across some interesting posts, including yours. Here is the thing. I’m not sure if this is a business for me or not. Do you know how long I can try out selling fba before I have to get a license?

    Reply
    • Diana March 11, 2015, 5:53 pm

      Hi Linda, Each state is different, but I know in my state, you’re supposed to register immediately. However, I waited until the 3rd or 4th week after I signed up as a Seller before I registered for my business license.

      I would send in a couple of shipments, decide if it’s for you. If yes, then at least register for your home state. If no, then just not continue with Amazon. Good luck and let me know what you decide. Diana

      Reply
  • Dawanda October 16, 2015, 3:32 pm

    Hi Diana

    I have a few questions…do you think any type of license is required if I plan of getting my inventory from China? For example a reseller license is required if you’re getting inventory that has a sales tax that’s only for U.S suppliers right? Second, are there any other additional requirements that have come your way since you posted this article last year?
    I’m starting my Amazon reseller business for Private Labeling and would love your input!

    Respectfully,
    Dawanda

    Reply
    • Diana October 16, 2015, 9:12 pm

      Hi Dawanda, I haven’t done any Private Label or purchased any products from China, so I don’t know the answers to those questions. 🙁

      But as for the US, the process is pretty much the same since I wrote the article. Amazon has more warehouse locations so there are more states to register in.

      Let me know how your PL goes!

      Diana

      Reply
  • KELLE RUIZ October 26, 2015, 2:42 pm

    Savvy article . I was enlightened by the info – Does someone know where my business would be able to access a template 2014 WA DoR REV 41 0112 copy to work with ?

    Reply
    • Diana October 26, 2015, 6:11 pm

      Hi Kelle,
      I don’t know what that template is. I found all of the info I needed from Washington’s Dept of Revenue website.

      Diana

      Reply
  • Skaki January 19, 2016, 4:56 pm

    This blog post was so helpful.I am in the process of setting up an amazon seller account,i am very confused.I have an LLC registered and a business bank account.I have to buy my products using only my business bank debit card?or i can buy with my credit card?When i file taxes,how can i report my buying expenses?Thank you so much.

    Reply
    • Diana January 19, 2016, 7:25 pm

      Hi Skaki,
      You need to keep your personal and business bank and credit card accounts separate. So, for your business debit card, only use it for your business purchases.

      If you have a personal credit card that you want to use for business purchases, then make sure that you only use that card for business. Don’t buy both personal and business items from it.

      Mixing cards for both personal and business purchases will make your bookkeeping a nightmare and the IRS may also say you’re not an actual business.

      I’m not an LLC, so it’s best to talk to a pro about the taxes. But typically, keep track of everything you buy for Amazon and keep your receipts. Organize them by date and assign each purchase to a category – inventory, office supplies, shipping supplies, etc.

      Good luck with it, I know bookkeeping is very confusing. Again, it’s very important to not mix your business and personal together. Also, stay organized with your receipts and tracking your purchases.

      Diana

      Reply
      • Skaki January 19, 2016, 10:49 pm

        Thanks alot for getting back to me.If there is minimum balance in my business bank account,can i put amount from my personal checkings account.everything is so confusing.Please help.

        Reply
        • Diana January 20, 2016, 2:10 pm

          If you do, then you need to track it. For example, I used my personal money to get started with Amazon. So I put the money in my business checking and track it a a loan (liability).

          However, since you’re an LLC and I’m not, I’m not sure about the correct way to track the money. As a loan or Owners Equity. For now, track every that dollar that you deposit in your business checking and where it came from. Then talk to a CPA or other professional as quick as you can.

          Good luck with it!

          Reply
  • Tracy February 19, 2016, 2:58 am

    Hi Diana! I was searching to find out if I need a business license for Amazon FBA and your post came up. Very helpful! I also live in Washington, 30 minutes from Vancouver. I was wondering what method you use for inventory. Thanks!

    Reply
    • Diana February 19, 2016, 5:19 am

      Hi Tracy,

      Wow, that’s neat that we live near each other!

      I use the Accrual method for inventory.

      Feel free to email me or message me on Facebook if you have any more questions about getting setup. I’m usually able to answer on email/Facebook quicker.

      Diana

      Reply
  • skaki February 24, 2016, 4:17 pm

    I am starting as a individual seller in amazon.The shipping costs amazon charging and the charges i have are really lot more.What can i do on this issue?Please help.

    Thankyou

    Reply
    • Diana February 24, 2016, 7:16 pm

      Hi Skaki,

      Are you talking about your inbound shipping charges to the Amazon warehouses? Or you are talking about shipping fees to the customers that you fulfill yourself?

      Diana

      Reply
  • Reigna March 14, 2016, 3:34 am

    Hi!

    I just want to thank you for your blog. Your posts are so thorough and picturesque…I feel like I’m riding along with you.

    I am just starting out selling on Amazon and I would like to get ungated in the shoe category. Do you know how I can go about doing that? I tried to get ungated in another category (beauty, health etc.) but was told that I needed invoices not receipts. Any advice would be greatly appreciated <3

    Again, thank you for your blog. Keep writing because I'm going to keep reading.

    Much blessings,

    Reigna
    reignafall@yahoo.com

    Reply
    • Diana March 14, 2016, 4:09 am

      Hi Regina,

      When I was approved in shoes last Oct or November, it was pretty easy. All I did was go to the “Request Approval” form and filled out a few questions about my company and about the shoes that I intended to sell. No receipts, invoices, flat files or images were needed. I answered the questions as best that I could and was approved instantly.

      With that said, I don’t know if it’s still the same way today. I do know of a few others that were also approved instantly within the last month. But, Amazon doesn’t always make sense. I would go ahead and try it and see if it’s still the same easy process.

      I’m sorry that the approvals in Beauty, Health & Grocery is so difficult these days. It was the opposite when I started on Amazon. Back then, those 3 were easy to get ungated in and shoes was hard.

      Let me know if you get approved in shoes and thank you for the nice comments!

      Diana

      Reply
      • Reigna March 16, 2016, 8:17 pm

        Diana,

        You are the best!! Thank you so very much for your response. Yes, it’s super hard to get ungated in the health and beauty categories. I tried recently but was asked for invoices instead of the receipts that I sent in. I hope it won’t be as hard in shoes but we will see.

        Keep writing because I’m going to keep reading.

        Thanks again!!

        Reply
  • Kenneth March 22, 2016, 4:31 am

    Hi Diana,

    Thank you for putting together such a thorough post. It’s really given a lot of insight into people like myself who are just starting out on this new FBA venture.
    I’m really enthusiastic on getting started and have watched and read through a lot of material about this business and yours is definitely on top of the bunch.

    I’m also in Washington and want to register as a sole proprietor.
    I currently have a bunch of stuff I want to ship into Amazon FBA to get an idea of how well I can do.
    If I do this, do I need to change my tax settings on FBA immediately so Amazon can charge the sales tax for any sales in Washington state (home state)?
    This is without having signed up for any business permits and such.
    Or should I see how the first few shipments sell and then decide if this is the right business for me at that point?

    Thanks!

    Kenneth

    Reply
    • Diana March 22, 2016, 1:05 pm

      Hi Kenneth,

      Welcome to Amazon FBA and it’s great that you’re starting to think about registering as a business and collecting sales tax early.

      This is what I would do:
      1. Send your stuff in right away. That’s the only way you’ll ever learn the process and know if it’s something you’ll want to continue with.
      2. DO NOT turn on your Tax Settings in Amazon…Not yet. It’s illegal to collect sales tax if you’re not registered with the state(s) to collect it.
      3. If you want to continue with it, then register for your business in Washington. It’s very easy to do so – go to the Dept of Revenue website and you can form your business structure and register to collect sales tax at the same time.
      4. Then go into Amazon and change the tax settings for Washington.
      5. Then consider signing up for TaxJar as it’ll make filing your returns easier.
      6. Then decide if you’re going to register with your Nexus states (I did) and start working on the rest of the states if you decide to do so.
      7. Also, get your business checking account early. Do you have a Columbia Credit Union near you? Their basic business account is free, even with a low balance.

      I would make it a goal to get signed up with Washington by your 30 day mark. This way, you’ll get your Resellers Permit so you can buy inventory tax-free at some stores. It’s easy with Walmart and Fred Meyer. Also, the earlier you do it, the less back taxes you’ll have to pay out of your pocket. But unless you start selling thousands of dollars on day 1, the amount should be minimal. Just a few dollars.

      Good luck and feel free to ask me any questions either here or on email.

      Diana

      Reply
      • Kenneth March 22, 2016, 4:48 pm

        Hi Diana,

        Thank you so much for the quick and detailed response!
        This is very helpful and I will get my current inventory sent in and see how well it does.

        Do you happen to use an accountant to help you with your taxes and bookkeeping?
        I’m also trying to find one but don’t know where to start. Do you have any recommendations on where I can being?

        Also do you happen to know if taxes for FBA are filed quarterly or annually?

        Thanks again,

        Kenneth

        Reply
        • Diana March 22, 2016, 8:56 pm

          I do the bookkeeping on my own. I first started tracking with Excel, then moved on to Quickbooks and InventoryLab. I have several blog posts on how I did things. Excel is great for starting, but as your volume increases, it gets very time consuming. I understand if you don’t want to join InventoryLab right away due to the expense, but to me it’s worth every penny. But I didn’t join it until 1.5 years after I started FBA.

          Then I have an accountant that does my annual tax return. I’ve been using him since 1999. If you’re in Vancouver, I can send you his info.

          I do recommend joining the “Accounting We Will Go” Facebook group. You can ask your bookkeeping questions there and the group leader, Anna is very good with answering the questions. Some sellers choose to do cash-based accounting and use GoDaddy Bookkeeping. In my blog, I have a review of Jessica Larrew’s GoDaddy Tutorial. If you want to go with the accrual method, then I recommend Quickbooks Online. Anna from the Facebook group has a course on that, but I’ve never taken the course.

          For Federal taxes, I just report my FBA numbers when I do my personal tax return. As a sole proprietor, it’s all one tax return. So, I give all of my info to the accountant and he does the return.

          For sales tax, every state is different. Some you’ll have to file your returns monthly, some quarterly and some annually.

          I know there’s a lot of information and decisions to make. But again, I think you’re on the right track to figuring this out early. But, you don’t have to have it all figured out on Day 1.

          Good luck and let me know if you have any more questions!

          Diana

          Reply
          • Kenneth March 22, 2016, 9:09 pm

            Hi Diana,

            Really appreciate all your help and can’t thank you enough for this goldmine of information!

            Thanks,

            Kenneth

  • Megan Chin May 19, 2016, 4:24 pm

    Hi there! Loving this blog as I just launched my amazon fba business and am currently preparing my first shipment! Question about the resale certificate to allow you to avoid paying sales tax: how do you use it for online purchases? I learned that taxes do eat up a chunk of my profits per item and wondered how to get around to it. How do you ensure that the customer who buys through Amazon it will be paying for the sales tax? Sorry It’s probably a Rookie question but I’m clueless!!

    Thanks!
    -Megan

    Reply
    • Diana May 19, 2016, 7:00 pm

      Hi Megan,
      Sales tax is very new and confusing so don’t worry about asking any questions.

      For online purchaeses, every store has their own policy regarding the acceptance of the resale certificate. The only two stores that I have my permit setup online is with Amazon and Office Depot. I used to have it with Target, but they no longer offer the program as they are reseller-unfriendly.

      So, typically, go to the “customer service” or “contact us” section of the store that you want to shop with and ask them directly about the policy. Keep in mind that some stores do not want you to purchase their goods for resale.

      For your Amazon Buyers: You’ll need to go into Seller Central and change your Sales tax collection settings. You’ll enter the resale number for your state and Amazon will collect the taxes for you. Then when they send you your payment, they will send the tax money too. Then depending on your schedule, you’ll either file a return with your state monthly, quarterly or annually and send the state the tax money.

      I highly recommend going to the TaxJar website as they have a lot of info.

      Also, be sure to read this article by Jennifer Dunn of TaxJar.

      Let me know if you have anymore questions and good luck with your new Amazon FBA Business!!

      Diana

      Reply
  • Lindsey July 2, 2016, 5:33 am

    Great information Diana!
    Thank you for sharing all your wonderful info 🙂 Very encouraging.

    Reply

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About Diana


I am working towards creating a full-time income by selling on Amazon. It's a lot of work but very fun! If you're interested in selling on Amazon, be sure to follow my blog as I'll be providing you with lots of tips!

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