Sales Tax 101 for Online Sellers
As an Amazon FBA seller, you want to spend time on sourcing, improving your listings and creating relationships with suppliers. What you don’t want to spend time on is unprofitable tasks like dealing with sales tax.
Fortunately, like any other administrative hassle, sales tax can be conquered once you firmly understand it. This post will explain the five steps to sales tax compliance for Amazon FBA sellers and give you some tips to put a lid on sales tax.
Step 1: Determine Where You Have Nexus
You will always have sales tax nexus (or “significant presence”) in your home state. Business activities in other states like storing goods in a warehouse, having an employee or salesperson, or attending a trade show as a vendor can create sales tax nexus.
As a FBA seller, you’ll want to know which warehouses Amazon is using to store your products in order to determine where you have nexus. You can use this guide to finding where Amazon stores your products.
What does it mean if you have sales tax nexus?
If you have sales tax nexus in a state, you will be required to charge sales tax from customers that purchase items from you in that state. Let’s say you now have nexus in South Carolina because Amazon stores your merchandise in a fulfillment center there. If you also have an eBay store and sell to customers in South Carolina, you must then charge that buyer South Carolina sales tax, because you have sales tax nexus in South Carolina.
Step 2: Register for Sales Tax Permits in States Where You Have Nexus
After you’ve figured out the state(s) where you have nexus, you’ll next need to register for a sales tax permit in those states by visiting the website for each state’s department of revenue or other taxing authority. Keep in mind that some states charge for a tax permit but others are free. Also, some states require you to renew the permit annually and others do not. You can always visit TaxJar’s sales tax resources for each state to find out what that state requires.
The state will set you up with a filing frequency, either monthly, quarterly, or annually. You will be notified of this frequency upon receipt of your permit.
An important thing to keep in mind is that you cannot collect sales tax from buyers before getting a permit—most states consider this to be illegal. If you have any questions, check out our guide, “When to Register for a Sales Tax Permit” for a deep dive into this topic.
Step 3: Collect Sales Tax from Customers
Once you’ve figured out where you have nexus and have received the sales tax permits for those states, the next step is collecting tax from customers in those states. To help we’ve created a guide to collecting sales tax through Amazon FBA.
Step 4: Calculate How Much You Owe to Each State
This is the tiresome part of the process—well, the most tiresome part of the process. Your sales tax due dates will come soon, and before that date you’ll need to figure out how much sales tax you owe to each state.
To do this, you’ll need to tally how much you’ve collected in taxes from customers in each state on every one of your sales platforms. Most states further require that you break down this information into each sales tax district for that state, and some states will have hundreds of these. You’ll need to create a report from each sales channel and then find the tax rate for each sales tax district and apply it.
This is where having an automated solution like TaxJar is your best friend. TaxJar will integrate with your sales channels, calculate how much you’ve collected, and create your final report for each state. We can even automatically file your return in most states.
Step 5: Filing and Paying Your Sales Tax
At this point you’ve finished all of the hard work and it’s time to file! You have a few options at this point:
– You can have TaxJar automatically file your return in most states.
– You can file electronically for each state. You can find the website for each state’s department of revenue here.
– You can file by mail. This option has actually been eliminated in some states, so make sure you check and see if this is an option first.
Keep mind when filing that you are required to file on or before the due date. A late payment will frequently mean having to pay a penalty. On the bright side, some states will actually give discounts for filing early or on time. Also know that most states require a “zero return” so if you’re registered in one of those states you’ll need to file even if you didn’t collect any taxes for the filing period.
Once you’ve filed for each of the states where you have nexus, you can relax for a bit and enjoy the moment. At least until your next batch of sales tax returns are due!
If you’ve enjoyed this brief overview of the sales tax process and want more information, check out our Sales Tax 101 Guide for Amazon Sellers.
TaxJar is a service that makes sales tax reporting and filing simple for more than 8,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!