As readers of Diana’s blog already know, selling through Amazon’s Fulfillment by Amazon program (FBA) can be a lucrative choice for an eCommerce seller. Through FBA, Amazon will store and ship your products, while also providing customer support.
However an issue that can pop up with using FBA is sales tax compliance. Using FBA could mean that you have sales tax nexus in 16 different states, with more coming any day now. What’s this “nexus” thing you ask? Nexus is simply a fancy way of saying that you have significant presence in a state, like storing goods in an FBA warehouse. Establishing nexus in a state opens a whole can of sales tax worms, which we’ll go into below.
So before you panic about being an FBA seller and your sales tax compliance, read this guide to learn more.
Step 1: Determine Where You Have Nexus
Living and running your business in a state with sales tax means that you have sales tax nexus (or “significant presence”) there. Other business activities like having an employee, or salesperson, attending a trade show as a vendor, or storing goods in a warehouse, can also create sales tax nexus.
To find out where Amazon is storing your products, and thus where you might have nexus, then use this guide to finding where Amazon stores your products. You can also find this out through a paid service like Wherestock.com.
So what if you have sales tax nexus? What does that mean exactly?
If you have sales tax nexus in a state, then you have to charge sales tax to customers who buy from you in that state. This includes all of your business activities. For example, say you now have nexus in Virginia because your goods are being stored in an Amazon Fulfillment Center there. If you also have an eBay store and sell to a buyer in Virginia, you must charge that buyer Virginia sales tax. All because you now have sales tax nexus.
Step 2: Register for a Sales Tax Permit
So you have figured out which state(s) you have nexus in, the next step is registering for a sales tax permit. You can do this by visiting that state’s department of revenue or other taxing authority. Some state’s sales tax permits cost money while others are free. In addition some have to be renewed annually, while others do not. If you’d like to learn more about your state, visit TaxJar’s sales tax resources.
Once you receive your sales tax permit, the state will set you up on a filing frequency, which could be monthly, quarterly or annually.
One caution: Do not collect sales tax from buyers before getting a sales tax permit as most states consider this to be illegal.
This guide, “When to Register for a Sales Tax Permit” may answer more of your questions on this subject.
Step 3: Collect Sales Tax from Customers
Now that you know where you have nexus and you have received your sales tax permit, your next step is collecting from your customers in those states. To help you do that, we’ve made a guide to collecting sales tax through Amazon FBA.
Step 4: Figure out How Much You Owe to the State(s)
Here is the tedious part (and you thought all parts were tedious!). Soon enough, your sales tax due dates will roll around. When this happens, the first thing you will need to do is figure out how much sales tax you owe to each state.
First calculate how much you have collected from customers in each state on every platform that you sell on. Unfortunately, in a majority of states, you will need to break down this information to determine how much you collected in each sales tax districts. Some states have hundreds of these districts, so this can become a pain really quickly. You will have to create a report from each channel and then look up the taxes on a tax table. Not fun at all.
However, TaxJar makes this part easy. We will integrate with the channels on which you sell, gather up how much you collected, and create your final report for the state.
This will be useful when it comes to Step 5:
Step 5: Filing and Paying Your Sales Taxes
After you finish arranging all of that information, it is time to file. Now, TaxJar can take care of that too. We can AutoFile in 26 states and counting! If your state isn’t included on our list, we will still give you return-ready report which makes filling out your forms a breeze.
If you’d like to file your own return, find the web address for your state here.
A few things to keep in mind when getting ready to file:
- Always file on time. A late payment usually means a penalty.
- Filing early or on time helps. States will sometimes give discounts for those that file sales tax in a timely manner.
- Some states require a ‘zero return’ so even if you don’t collect sales tax, you might need to file.
Step 6: Relax
Now that you’ve accomplished sales tax compliance, enjoy the moment. Then get back to running your successful FBA business!
This has been a brief rundown of sales tax. If you want more comprehensive info, check out our Sales Tax 101 Guide for Amazon Sellers. Have questions or comments about sales tax? Start the conversation in the comments!
Note from Diana: When I signed up as an Amazon FBA Seller, I didn’t realize that sales tax nexus existed and that I would have to collect and pay. Once I found out, I panicked for a bit and then started doing my research and found TaxJar. I’m not sure if I would have been able to get through the sales tax process on my own as collecting in different states was an unknown to me. TaxJar has made it less scary and I’m now registered to collect in eleven states.
When you’re ready to get started with sales tax, I highly recommend jumping over to TaxJar and learning more about their services and signing up for their 30-day free trial.