Earlier this year, you may have seen our blog post about tax tips for Amazon sellers. Today, we’re digging deeper to look at FBA sellers and taxes – specifically, the tax requirements and considerations you need to be aware of as an Amazon FBA seller.
So whether you’ve waited until the last minute to file this year (hey, we’ve all been there!), or want to get ahead of the game and prepare for next year, here is everything you need to know about your state sales tax and federal tax obligations.
Part 1: State Tax 101
Where should you register?
Each state has its own tax laws and it’s up to you to determine if your state requires you to collect sales tax on its behalf. Not only that, you’ll also have to figure out if you should collect sales tax in states where you have “substantial nexus” (more on that below).
Nexus refers to a connection your business has with a state, be it location, inventory, warehouse use and/or fulfillment services. As an Amazon FBA seller, you have “nexus” with at least one state — the one where you live and presumably also do business. You likely don’t have a storefront, but if you do then its location counts as nexus as well.
When it comes to inventory, warehouse use and fulfillment, there is some grey area. Each state has its own definition of a “nexus creating activity” and – you guessed it – it’s up to you to figure out if you have inventory or use a warehouse or fulfillment service in a nexus creating state. In other words, your inventory is housed in any number of Amazon’s warehouses and fulfillment centers, but depending on which state(s) these are in, you may or may not be creating nexus.
To help you figure this out, here is a list of the states that will assume (or have at least implied) you have nexus:
- Inventory: AZ, FL, CA, IN, KS, KY, NJ, PA, SC, TN, TX, VA, WA (and most likely NV)
- Warehouse Use: CA, FL, IN, KS, KY, NJ, PA, SC, TX, VA, WA (and most likely NV)
- Fulfillment Services: CA, FL, NJ, PA, SC, TN, WA.
So before you register and start collecting in every state where Amazon’s warehouses and fulfillment centers are located, check to see if any of the above listed states apply to you and where your FBA dealings occur. Then look up the specific tax and nexus laws for each relevant state to see if you do in fact have nexus. And at the very least, make sure you’re registered in your home state.
Pro Tip: “Alex Bailey, Payability customer, Amazon FBA seller and owner of The Growler Republic, advises to: Go to your home state’s government first to see what their sales tax guidelines are and to see if you meet any specific criteria as it relates to business in other states. Then look into the states where your products are manufactured or warehoused to see what your obligations are.”
For additional help on this topic, check out Avalara’s tax guide for Amazon FBA sellers which includes nexus breakdowns, state-by-state information and more, or TaxJar’s Sales Tax Guide for Amazon FBA Sellers which provides examples of FBA seller cases for the sales tax nexus.
Collecting Sales Taxes as FBA Seller
Once you figure out the states where you have nexus, make sure to set up tax collection properly in your Amazon seller account. Go to Settings > Tax Settings and specify which states Amazon needs to collect from. Amazon will then collect the appropriate tax and send it to you to file and pay to each relevant nexus state.
This should go without saying, but if you don’t collect the required sales tax in your state(s), then you will have to pay out of pocket, most likely with penalties and interest on top.
Pro Tip: Keep a record of the FBA warehouse locations that store your items. This will help you stay on top of which states you have nexus in and need to collect sales tax from. You can generate this information from your shipping service portal.
Amazon’s New Nationwide Sales Tax Collection
You have likely heard that as of April 1, Amazon has started charging sales tax nationwide (with the exception of these sales tax-free states: Alaska, Delaware, Montana, New Hampshire and Oregon).
There has been a lot of talk and speculation about what this means for Amazon’s third party sellers, but at this point it looks like it should NOT have any impact on how your sales taxes are collected. Amazon’s recent announcement applies to items Amazon sells. Sales taxes will be collected on your sales only in the states you have specified in your account’s Tax Settings.
Because this change is so new, we’ll continue monitoring for any updates it may have for FBA sellers, so make sure to sign up for our newsletter and follow us on Twitter. In the meantime, you can read more about it in the TaxJar Sales Tax in Every State (and what that means for FBA Sellers) guide or in the Amazon seller forums.
Part 2: Federal Taxes & Filing
For help with the filing process and what information you need on the federal level, check out our Tax Tips for Amazon Sellers or read on for a summary of the post below:
Income & Deductions
As an FBA seller, you should have received a 1099 form earlier this year, which outlines your gross Amazon income as well as your FBA seller fees. In addition to deducting fees, consider your home office, travel and other business-related expenses.
Keep track of all relevant paperwork, receipts and tax forms.
Consult the Experts
Depending on the size of your business, you may want to work with an accountant who has experience with FBA sellers and taxes – or at least with online sellers.
Pro Tip: Alex Bailey, The Growler Republic, recommends: “Track every expense right from the start – every little bit helps, especially if you’re a sole proprietor. And when it comes to tax filing help, think about the size of your business and its overhead. In other words, if you’re just a sole prop selling on Amazon and don’t have a brick and mortar or payroll, for example, you should be fine filing on your own or with a tax prep service like HR Block. But when you start employing people, manufacturing items yourself and have more overhead, then it might make sense to retain some professional accounting help.”
If you have additional questions about your state and federal tax obligations, we recommend you consult a professional and look into the specific tax laws of your state(s).