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Registering to Collect Sales Tax and Filing Your Tax Returns

Sales tax is probably one of the most dreaded aspects of the Amazon FBA business. I forced myself to figure it out because I have no desire to pay unpaid sales taxes + penalties + interest if I were to get audited later.  That’s money out of my pocket and stress that I don’t need.  However, filling out the state registration forms and tax returns was challenging because there were several questions that I didn’t know the immediate answer to and had to either guess, call the state or post a question in a Facebook group.

In this post, I’m going to share the steps that I took to register/pay sales tax.  However, before you read this post, please note that I am not a tax professional or a legal advisor.  So, please do not take any part of my post as professional tax or legal advice.

Here is the general process that I went though to register for my first nine states:

1. I read everything that I could about paying sales tax. I did this by searching the Internet, reading everything on the TaxJar website and reading all of the posts on the Sales Tax for eCommerce Sellers Facebook group.  You can also go a step further and setup a meeting with SCORE (they offer free business advice) or schedule an appointment with a CPA or other business/tax professional.

2. I formed a business structure and signed up to collect taxes in Washington (where I live). Please read my post, FBA: Registering a Business and Sales Tax to get more information on this.  When you register with the different states, you’ll need to tell them your business structure.  So, it’s good to figure this out beforehand.   I am currently a sole proprietor as it was the simplest and least expensive to set up.  However, in the future, once I start making real money with Amazon FBA, I plan on changing to the LLC business structure.  Unfortunately, changing it will cost me more time and expense.

3.  I applied for a EIN number also known as a Federal Tax ID Number.  You can do this for free on the IRS website.  I did this so I wouldn’t have to give out my social security number.

4.  I then went to Amazon Seller Central and setup my account so that Amazon will collect Washington State sales tax for me.  You need to be a Professional Seller to sign up for this service.  To setup Amazon to collect taxes for you, go to Settings -> Tax Settings -> View/Edit your Tax Collection Obligations and Shipping & Handling and Gift Wrap Tax Settings.  TaxJar has a free guide that will help you setup your settings.

5.  If you subscribe to TaxJar, you’ll also need to head over to their website and edit your state settings.  Here, you’ll enter your state ID number and tell them if you are a monthly, quarterly or annual filer for your state.

5.  Make a few extra copies of your Resellers Permit so you can present it to the retailers so you can purchase your inventory tax free.  I sent a copy to both Amazon and Target.com so that I can make tax-exempt purchases from them as well.  Just be sure that you don’t use your permit to purchase personal goods or any items that you won’t be reselling.

6.  Over the next few weeks, I worked on getting registered in the other states.  I started with the state that I had most of my inventory stored in.  You can check where your inventory is stored at by going into Seller Central and selecting Reports -> Fulfillment.  In the left side bar, you’ll see different inventory reports that you can run. I usually look at either Daily Inventory History or Monthly Inventory History.

7.  Unfortunately, Amazon doesn’t tell you the actual state that your inventory is stored in.   Instead, they give you their warehouse codes.  Below, I listed the states and the warehouse codes (data taken from TaxJar).  This list will change over time as Amazon adds new warehouses.

  • Arizona: PHX3, PHX5, PHX6, PHX 7
  • California: ONT2, OAK3, OAK4
  • Delaware: PHL1, PHL3, PHL7, PHL8 – doesn’t have a sales tax, so you don’t need to collect
  • Florida: LAL1, TPA1
  • Indiana: IND1, IND3, IND4, IND5, IND6, SDF8, XUSE
  • Kansas: TUL1
  • Kentucky: SDF1, SDF2, SDF4, SDF6, SDF7, SDF9, CVG1, CVG2, CVG3, CVG5, LEX1, LEX2,
  • Nevada: RNO1, LAS2
  • New Hampshire: BOS1 – doesn’t have a sales tax, so you don’t need to collect
  • New Jersey: EWR4, EWR5
  • Pennsylvania: AVP1, ABE2, ABE3, ABE5, PHL4, PHL5, PHL6, VUBA, VUGA, XUSC
  • South Carolina: CAE1, GSP1
  • Tennessee: BNA1, BNA2, BNA3, CHA1, CHA2
  • Texas: DFW6, DFW7, DFW8, SAT1, XUSB
  • Virginia: RIC1, RIC2
  • Washington: BFI1, BFI3, SEA6, SEA8

8.  Then I went to TaxJar and read about the state that I was working on.  From there, I used their link to get to the state’s website to start the registration process.  Each state will ask their own sets of questions and some will be easier than others. I recommend contacting the state directly if you need help with filling out their form.

When I filled out my forms, I registered as an out of state dealer and provided my personal address as my business address.  I have never used an Amazon warehouse as my address.  I believe that in most instances, I’m signed up to collect use tax instead of/or in addition to sales tax.  Also, for the NAICS code, I used 454111.

Like I said earlier, every state is different.  For example, in Arizona, you’ll be registering for Transaction Privilege Tax.  When you register for California, you’ll need to provide references and send in your picture ID.  South Carolina charges you $50.00 to register.  Some states will send you an online certificate and others will mail it to you.  I registered as a sole proprietor.  If you are registering as a corporation, the process is more complex.  Remember, if you have questions, you can call the state or discuss it with a tax professional.  When I was filling out the forms, I posted a few questions to the Sales Tax for eCommerce Sellers Facebook group

9.  Each time I received a new state tax ID number, I went back to Amazon Seller Central and TaxJar and added that particular state to my account.

Tip: Each time you register for a state, sign up for their eFile service right away as it may take a few days for the registration to go through.  Also, be sure you save your eFile login and password in a place that you’ll be able to easily find later.

At this point, if you signed up for Amazon’s tax collection service, Amazon will start collecting sales tax for you.  They will give you the sales tax money with your payouts.  It’s important to keep track of how much of your payout is sales tax.  You shouldn’t spend it because you’ll need to send that money to the state when you file your tax return.  If you are tempted to spend it, then transfer the money to a separate checking or savings account that you can’t easily touch.  The sales tax money really isn’t yours to use.  If you spend it on expenses or to buy new inventory, you’ll need to come up with the money later when your tax return is due.

Filing Your Taxes
Each time you register for a state, you are now obligated to file tax returns.  After you complete your registration, the state will notify you if you are a monthly, quarterly or annual filer.  You need to file even if you did not collect any sales tax.  I have filed a few zero dollar tax returns already.

This is how I do it:

1.  At the beginning of each month, I check to see which returns are due for that month.  So, after you register to pay sales tax, it’s important that you keep track of when your returns are due.  If you are a TaxJar subscriber, you can see which returns are due once you log into your account.

2. I recommend filing your returns as early as possible.  Last month, I made the mistake of waiting until the last week before my returns were due.  Arizona’s website was experiencing technical difficulties and it took me 4 days to file my return.  Some states will let you file a paper return, but not all will.

3.  You’ll need to know how much you collected in sales tax for each state.  If you are a TaxJar user, they will give you this information.  If you are not, you can get the information from Amazon.  You can go to your payments page and select “transaction view.”  From there, you can click on the number in the “total” column of each transaction to see if tax was collected or not.  Then you’ll have to add up the amount you collected from each state on your own.  Also, you can go to Reports -> Tax Document Library and download a tax report.  I don’t use this report because it’s hard to read.  You will definitely need to format it in Excel.

4.  Once you have your totals, you’ll need to go to each state website and either eFile with them or fill out a paper return.  I prefer to eFile because then the website does many of the calculations and I don’t have to worry about my return being lost in the mail.

5.  As with registering, filing your tax returns isn’t always simple.  Each state has a different way of doing it and again and you’ll probably have lots of questions.  Even though TaxJar gives you your totals, they don’t give step-by-step directions on how to fill out each line on the returns.  For a $19.95 fee per state, per filing, TaxJar will file your returns for you.  So far, I have not used their filing service as I file the returns on my own.

6.  Once your return is completed, make sure you pay the tax also.  Usually, I do this at the same time when I file my return.  But if you don’t have the money today, you can schedule the payment in for a later date.  If you file a paper return, make sure the return and payment gets postmarked on or before the due date.

7.  If you are a TaxJar user, then you’ll need to go to your account and mark that state as filed and paid.

Tip: Stay organized by keeping a central location to keep track of all of your state information.  I created an Excel spreadsheet where I have each state that I’m registered in, my eFile login and passwords, my state tax ID number and when my return is due.  As I complete each return, I mark it as completed.

Sales-Tax-Spreadsheet

I wish that I can give you more detailed information on how to register and how to do your tax returns. But that is far beyond the scope of this post.  As always, I’m available to answer questions the best that I can.  Just ask in the comments section below.

Take Care,

Diana

p.s. TaxJar offers a 30-day trial for you to try out their services.  I recommend not signing up for it until after you registered for your state(s) because if you’re not collecting sales tax, there is no reason to sign up with them.  If you don’t want another monthly fee, I would at least sign up for the free trial and compare their monthly sales tax totals to what you come up with manually.  That way you can check to see if you’re figuring it out correctly.

Photo Credits:
Featured Image: © andrewgenn – Fotolia.com
Excel Spreadsheet: Diana Poisson

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{ 32 comments… add one }
  • Jennifer @ TaxJar November 10, 2014, 3:06 pm

    Hi Diana, Thanks for the shout outs to TaxJar! It’s so enlightening to see how you go through your sales tax process. Keep the great posts coming!

    Reply
    • Diana November 10, 2014, 4:30 pm

      Hi Jennifer, TaxJar really helped me a lot with sales tax. To be honest, I didn’t even know that we had to deal with sales tax when I joined Amazon FBA. Once I found out, I almost gave up on Amazon because I knew nothing about collecting taxes from different states and the thought of doing so scared me. TaxJar made a scary thing less scary and I highly recommend your services. Diana

      Reply
  • Elaine November 10, 2014, 5:27 pm

    That was an absolutely FANTASTIC article! Thanks for sharing that information. I’ve registered in my home state and now I’ve gotta get registered in some others.

    Reply
    • Diana November 10, 2014, 6:59 pm

      Hi Elaine, that’s great that you are registered in your home state! If you haven’t joined it, I recommend joining the Facebook group that I mentioned in my post. That’s a great place to ask questions if you get stuck while you’re registering for the other states. It’s overwhelming at times because all of the states ask different questions. Please keep me posted on how you are doing and thanks for stopping by! Diana

      Reply
  • Windy December 28, 2014, 10:02 pm

    Thank you for this information. This was a very helpful article!

    Reply
    • Diana December 29, 2014, 2:06 pm

      Hi Windy, glad it helped and thanks for stopping by!

      Reply
  • Daniel Johannes January 11, 2015, 8:39 pm

    Hi Diana,
    This was actually really helpful for me. I’ve been using FBA for a while now (a few years) and recently the “nexus” issue was brought to my attention (meaning the state sees your business as a “physical presence” in the state if you have inventory there!) I’ve been tirelessly working with my CPA on this issue for quite a while and am beginning the process of registering this year (I’ve also signed up with tax jar.) This step by step was really helpful. I have a question for you:

    It was brought to my attention that I basically need to register as a business in each state (not just a “collector of taxes”) meaning I need to pay the business fee for that state (for my LLC), register with the secretary of state and pay for a registered agent service. These are annual fees. Upon calculating it, it looked like it could be up to $400 for a single state! That’s over $4000 if registering in all states… per year! My question is this: Do you know what it cost you overall to register in all the states you have inventory? Also, what recurring fees do you have? I’m hoping I’m getting incorrect information! Thanks for posting this stuff!

    Reply
    • Diana January 12, 2015, 2:56 am

      Hi Daniel, my situation is different from yours as I’m a sole proprietor. So, unfortunately, I really can’t answer the questions relating specifically to LLC’s.

      But in general, yes, you do need to register with each nexus state to collect from them. As a Sole P, it cost me about $100 for my registrations. The costs to register ranged from $0.00 to $50.00 per state. As an LLC, there are more steps and more fees involved.

      The state registrations is whats holding me back from becoming an LLC. Since I’m less than a year into being an Amazon Seller and my sales/volume is very low, the registration fees will take up more than what I make in profit. But, I do have the same questions as you do. I will be meeting with my accountant in Feb and I’ll be asking him the same type of questions.

      For now, my recommendation is to join the TaxJar Facebook group page – “Sales Tax for eCommerce Sellers.” There are LLC members on there and I’ve seen them ask the same questions so you should be able to get some of your answers there. Good luck and if I find out anything new after meeting with my CPA, I’ll send you a note.

      Diana

      Reply
  • Chris Anderson July 2, 2015, 4:47 pm

    Hi Diana –

    Thank you so much for writing this. It was tremendously helpful.

    What type of references did California need to get a license?

    Reply
    • Diana July 20, 2015, 9:48 pm

      Hi Chris,
      I’m sorry for taking so long to respond. All of my comments got sent to SPAM and I just discovered that today.

      For California, I had to send them a personal reference. I just used my friends name and phone number. Also, I had to fax them a copy of my Drivers License. Since they processed the application pretty quickly, I don’t think they did a background check or called my friend.

      Good luck with California and let me know if you have any more questions. I’ll be watching my SPAM folder from now on.

      Diana

      Reply
  • Alex July 9, 2015, 3:30 am

    Hi, Diana.

    Thank you for your outstanding article. Step by step description of the process is great.

    Alex,
    Siberia, Russia

    Reply
    • Diana July 20, 2015, 9:35 pm

      Hi Alex, glad the article helped. Looks like you’re far away in Russia. I’m not sure how sales tax works if you’re in a different country. Sorry for taking so long to reply, my comments got sent to SPAM.

      Diana

      Reply
  • Juan July 25, 2015, 5:46 pm

    Hi Diana,
    We are just starting with Amazon FBA (two months so far and very little volume).We are register to collect sales taxes in our state but going to register in the other states now. My question is, since we may have some previous sales in those states and we have not had collected sales taxes. When you register in the state, you have to pay uncollected sales taxes +penlaties? or you spay since the day that you register?
    Thank you very much great post!

    Reply
    • Diana July 25, 2015, 7:07 pm

      Hi Juan, I’ve seen your same question asked a few times in the Facebook Groups and I don’t think anyone knows the official answer. So, it comes down to your comfort level. I chose to pay taxes from the date I registered and signed up with Amazon Tax Collection. I did pay a few sales taxes out of my own pocket for a few items. For example, if I registered on July 15th, I ended up paying out of my own pocket uncollected sales taxes for July 1 to July 14. With that said, the amount was very tiny (a few cents or maybe a couple of dollars).

      Since you are new, have small volume, you won’t owe that much either way you go. I would check to see which states you have nexus in and start with those. I would either put a July 1 date (then you will have to file a return in Aug) or start with Aug 1. I’m not a tax expert and this is just my opinion. Any back taxes you owe would be minimal unless you sold thousands in your first two months. You’re very smart to get started on this early so you don’t take any chances of owing a large sum later.

      Good luck and also if you haven’t, be sure to sign up for the https://www.facebook.com/groups/SalesTax4EcommerceSellers/ Facebook group. That’s a great place to ask questions. Also, feel free to ask me questions at anytime.

      Diana

      Reply
      • Juan July 26, 2015, 12:55 am

        Thank you very much Diana! It was very helpful
        Best,
        Juan

        Reply
  • James October 27, 2015, 5:13 pm

    Can you send me copy of Excel spreadsheet that was shown organizing your states?

    thanks
    Jim

    Reply
    • Diana October 28, 2015, 12:56 am

      Hi James,
      I’ll send it to your yahoo email address in a few minutes.

      Diana

      Reply
  • john P November 16, 2015, 4:34 am

    Hi Diana, I’m a sole proprietor as well, Ive asked this question in several places but no one seems to have a straight answer.. As amazon FBA sellers, do we have to pay state income tax in states other than our home state?

    Reply
    • Diana December 6, 2015, 8:31 pm

      Hi John,
      Sorry for not getting back to you sooner…I have a problem of not getting notified of new comments. But to my knowledge, no, you don’t have to pay state income tax in other states. I didn’t for Tax Year 2014 and my accountant never mentioned it. Of course, I’m not a CPA and am not able to give legal advice.

      Reply
  • Miguel December 18, 2015, 4:16 am

    Thanks for your article! I have a question on registering late. Do you of any late registration fees that apply for any of the nexus states and what amounts? I started in the last quarter of 2014 but did not make much to trigger a 1099. What happens if I say I started Jan 1st 2014 on the start date?

    Reply
    • Diana December 18, 2015, 2:10 pm

      If you use Jan 1, 2014, I’m guessing that you’ll have to pay penalties on the late filings and interest on the amounts owed. I think Texas charges $50 a month in late filings, so it can be expensive or maybe you can call them and see if they’ll waive the fees. The other option would be to just register for Dec 1, 2015 date or Jan 1, 2016 and not pay any late fees now but know it can come back later. I can’t tell you which way to go and in the tax group that I’m in, no one gives an “official” answer on which way is correct. Either way you go, it’s good that you’re getting started.

      Reply
  • Tammy February 10, 2016, 11:36 pm

    Thank you for this helpful tax guide. I am just in the research and decision stage of FBA selling and after realizing that I had to file taxes in each state amazon ships from, was feeling quite overwhelmed and slightly grumpy ;)! Understanding your process is very helpful and encouraging! Although, I still grimace at the idea of going through the tax hoops, it seems do-able and it appears that once you have a system in place, won’t consume too much time and energy. Thanks again!

    Reply
    • Diana February 11, 2016, 3:11 am

      Hi Tammy,
      To be honest, I almost quit FBA once I learned about the sales tax thing. So, I completely know how you feel… It’s scary signing up for your first 1 or 2 states, but then after that, it’s not so bad. Plus, filing the returns doesn’t really take a lot of time except for January when all of the monthly, quarterly and annual returns are due at once.

      When you’re ready to tackle it, just do one state at a time. Also, I highly recommend TaxJar as their service makes it so much easier. The Amazon tax report is almost impossible to read so that’s where TaxJar comes in handy.

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

      Diana

      Reply
  • Trey February 24, 2016, 11:20 pm

    Hi Diana,

    I really appreciate all your honest and transparent answers.

    I was just wondering how you registered as an “out of state” seller? Was there a box to check, or was it a completely separate form?
    Also, if you choose to pay prior taxes, does the state tell you how much to pay, or do you have to manually calculate that through the Amazon reports?

    Thanks again!

    Reply
    • Diana February 25, 2016, 12:19 am

      Hi Trey,
      Every state is different on the questions they ask on their forms, but there’s usually a place that you’ll indicate that you’re an “out of state dealer.” I start by navigating to register for sales/use tax and go from there. Actually, to be honest, I can’t remember if they all have an “out of state” option or not. The first few are the hardest, but after you do those, then you’ll find that they do get easier to figure out.

      If you chose to pay prior taxes, then yes, you’ll have to go through your Amazon reports and figure out which states you had nexus in and what your sales were to those states. With some of those states, you may have to break it down by city, county or some type of jurisdiction. That’s why I use TaxJar because they do all of those calculations for you.

      Good luck with it! Also, I recommend joining the Sales Tax for eCommerce Sellers Facebook group. They are really helpful.

      Diana

      Reply
  • Michael February 25, 2016, 8:04 pm

    Hello,
    Thank you for the article! I also would like to know what to do when a customer returns a product to me and I have to pay back the sales tax to him after filing. Do I mention this on my next filing so that I can get a refund for the sales tax?

    Thank you!

    Reply
    • Diana February 25, 2016, 8:54 pm

      Hi Michael,
      Good question. I use TaxJar and when I have a refund, that’s deducted out of the sales that I report to the state.

      So, if I sold $1000 in January and had a refund for $100…. Then the gross sales that I report to the state would be $900.00 for that month.

      Anyway, that’s how I’ve been doing it because that’s how TaxJar gives me my gross sales.

      I’m not an expert, so even though that’s how I’ve been doing it, it could be incorrect if the state has a different spot on their form for customer returns. Either way though, the final amount owed to the state should be the same.

      Diana

      Reply
  • Lucky April 6, 2016, 8:20 pm

    How do you avoid sales taxes at retailers like Walmart? Do you show them your state sellers permit?

    Reply
    • Diana April 6, 2016, 8:54 pm

      Hi Lucky,
      Every store is different:

      Walmart: take your Reseller’s Permit to the customer service desk and they will give you a card. Then everytime you purchase something, show the cashier before he/she rings up your purchase. I had to talk to 3 Walmart employees before I received my card because the first few didn’t know what to do.

      Costco: Same as Walmart, but they’ll give you a new membership card.

      Target: No longer accepts the Reseller’s Permits.

      Fred Meyer: Go to the customer service desk and they’ll give you a form to fill out. You’ll have to get a new form each time and present it to the cashier each time.

      In general, just go to the customer service desk with a copy of the Reseller’s Permit and they’ll let you know what to do. Keep in mind, that some may not know what you’re talking about, so you may need to ask for someone else.

      I don’t know the specifics on too many stores because I do most of my shopping in tax-free Oregon.

      Diana

      Reply
  • Sue Roscoe June 30, 2016, 7:23 am

    Thank you for a great article. I had no idea of these things. What about if we are only buying retail things to resell and paying the sales tax when we purchase? We should not have to collect sales tax in that case? Am I misunderstanding this? And if so and then later begin to buy wholesale how do we track what sales are wholesale when selling on Amazon?

    Reply
    • Diana June 30, 2016, 1:23 pm

      Hi Sue,
      I’m not 100% sure on this, but to my knowledge, you still need to collect sales tax even if you paid sales tax at the store.

      If you haven’t done so, I would at least sign up with your home state, get your Resellers Permit and start with collecting tax and filing returns in your state only. Then later on, you can work on the other states.

      Also, if you want to purchase wholesale, most of the wholesale companies require a copy of your Resellers Permit so you’ll need to get one anyway.

      For tracking, you can code your MISKU so that you know which are wholesale, and which are retail. For example, you can do something like: Tar0630165.29 which means you purchased an item at Target on June 30, 2016 and the cost was 5.29. There are different ways that you can code it, depending on what info that you want to know.

      Diana

      Reply

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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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