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