April 29, 2020

Sales Tax for Amazon FBA: 4 Liabilities You Still Have

Sales tax is more complicated for Amazon FBA sellers than most retailers. Because even with Amazon taking care of things, you’re still responsible for these four liabilities on your Amazon sales.

If you have a physical presence or sufficient economic presence in a state, you’ll have nexus there. And when you have nexus in state, you have to collect and remit sales tax on transactions there.

For Amazon sellers, however, things are a little more complicated. Amazon is required to collect state sales tax for their Fulfilled by Amazon (FBA) sellers in every state with marketplace facilitator laws. And a majority of states have these rules in place.

Amazon defines its responsibility the following way:

“Amazon calculates, collects, and remits tax on sales made by merchants shipped to customers located in the states that have enacted Marketplace Facilitator, Marketplace Fairness, or similar law.”

Put simply, if you make sales through Amazon in these states, Amazon handles your sales tax there.

That said, Amazon handling your sales tax is not a free pass. There’s a lot of responsibility you still have. Here are four things you can’t afford to overlook.

There Are States Without Marketplace Facilitator Laws

While a majority of states have passed their own facilitator laws in the last few years, there are a number that haven’t. Amazon sellers are responsible for sales tax on all transactions in that state.

As of April 2020, the following states don’t have facilitator laws:

  • Florida
  • Kansas
  • Louisiana
  • Mississippi
  • Missouri
  • Montana

(Alaska, Delaware, New Hampshire and Oregon don’t have facilitator laws, but that’s because they don’t have sales tax.)

If you sell on Amazon in any of these states, you – not Amazon – have sales tax liability there.

Collecting Exemption Certificates

If you sell through Amazon in a state with marketplace facilitator laws, Amazon took care of your sales tax liability for you on those transactions. But the states won’t know that until you prove it to them.

Some states require you to request and maintain exemption certificates if a marketplace facilitator manages your sales tax on their platform. Failure to do so can lead to devastating penalties.

Exemption certificates are especially important during state audits. If you neglect to collect them now, you could face serious consequences a few years in the future.

You’re Still Responsible for Local Sales Tax

Many cities and municipalities charge sales tax. But Amazon is only responsible for state sales tax. They won’t help you with your local sales tax liability. That means, even on transactions for which Amazon took care of the state taxes, you might have to calculate, collect and remit local taxes.

Local sales tax rates and laws vary significantly. Dealing with this liability can be unmanageable without a dedicated team or system in place.

Fulfillment Centers Might Create Physical Nexus

One way of establishing physical nexus in a state is to store inventory there.

In certain situations, Amazon fulfillment centers may store your inventory in states you don’t sell in. This would create tax liability for all of your sales in that state – even if they aren’t through Amazon.

This can drastically expand your liability, so it’s important to keep track of it.

It’s worth noting that some states like New York do offer exemptions to this.

Conclusion

Amazon can be a powerful tool for businesses to sell their products online. But it’s important to remember that, when it comes to sales tax, Amazon is looking out for its own interests, not yours.

Amazon may be handling sales tax on some of your transactions, but you still need to conduct due diligence and actively maintain compliance. Because this can be a daunting task, many Amazon sellers turn to sales tax consultants for help.

If you’re still worried about your liability on Amazon sales, here are a few steps you can follow:

  • Contact your CPA
  • Contact a sales tax specialist. We can help you here. Set up a free consultation today.
  • Do your homework. The first step towards compliance is understanding how it works. Here’s everything you need to know about economic nexus.
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