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Are you an Amazon seller operating in the United States? Well, in that case, you must be aware of the different sales taxes coming up. However, if you are a relatively new seller, the Amazon FBA sales tax may confuse you. A lack of proper understanding of the taxes can give rise to several issues for Amazon sellers. Therefore, having a clear idea about the sales tax is vital. This blog post can provide detailed insight into Amazon FBA taxes and help clear your doubts.
Different Types of Taxes for Amazon FBA Sellers
Consumption taxes are usually applied to different goods and services. As an Amazon seller, you must have comprehensive knowledge about the FBA Amazon sales tax. Here are some of the common types of taxes you must know about.
Sales Tax
Wondering what the sales tax on Amazon is? Sales tax is one of the simplest types of tax. It is a one-time tax charged explicitly on the sales of goods and services. The seller usually collects the tax from the customer, and the money goes to the government. The sales tax may differ from state to state.
Value-added Tax
Value-added tax, commonly known as VAT, is the consumption tax charged at different production stages. At every production stage, the value of services and goods increases. That is precisely where the value-added tax comes into the picture.
Goods and Service Tax (GST)
Goods and service tax is the tax charged at different stages of the supply chain. However, unlike VAT, it does not depend on the value that is being added. It is usually a flat-rate percentage of the sales transaction.
By now, you must be well aware of the different taxes. The sales tax for Amazon sellers is generally collected on items that are regarded as non-essential. As an FBA seller, you must collect sales taxes in the states meeting the two essential criteria. It includes sales tax nexus and product taxability.
Sales Tax Nexus
Are you wondering what the sales tax nexus is? It is the term that defines the presence of a physical place of your business in a specific location. However, the definition of sales tax nexus may vary from state to state. There are several ways a company can have sales tax nexus in various states. It includes personnel, location, affiliates, inventory, and drop shipping relationships.
Product Taxability
Next, you need to understand product taxability. Certain products are not taxable or may be taxed differently in different states. So, to ensure compliance with the tax regulations of the states, you need to find out whether the products you sell are taxable or not. The tangible products are usually taxable, while the services are not taxable.
To collect the sales tax, the Amazon seller must register in the state where his business operates. After receiving the permit, Amazon will provide the seller with information about filing frequency and due dates of sales tax.
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How Do I Calculate My Income Tax Liability As An Amazon Seller?
Now that you have a brief idea of sales taxes and when to collect them, it is obvious to think about how tax is calculated on Amazon. The good news is that Amazon has a robust sales tax calculation and collection engine. Once you have registered to collect sales tax, you can easily set up your sales tax collection with Amazon.
All you need to do is tell the collection engine that you want to collect the sales tax. The engine can help collect the tax at the correct rate from the FBA customers on Amazon. It enables the sellers to enter the product tax codes and charge the valid tax on different items.
A point to note here is that Amazon will charge 2.9% of each transaction for the sales tax collection. If you are thinking about how much amazon charges for tax, 2.9% is the answer.
Now that you have all information relating to tax calculation, the next thing to do is to set up sales tax collection. Want to set up your sales tax collection on Amazon? Here are the steps you need to follow.
- Use appropriate credentials and log into Seller Central.
- Click on the "Settings" option and head to "Tax Settings" in the dropdown.
- Select "View/Edit your Tax Collection and Shipping & Handling and Giftwrap Tax Obligations Settings."
It will allow you to select the states where you want to collect the sales tax. It will also allow you to enter the custom sales tax rate. However, this is not recommended as the sales tax rates keep changing.
Before setting up your sales tax collection on Amazon, it is vital to ensure that you have the state sales tax registration number. It provides that only the registered sellers can collect sales tax from Amazon FBA customers.
Next, you need to set the product tax codes. It is also simple and easy. After completing the sales tax setting, you must return to the "Tax Settings" page on Seller Central. Then select the 'Tax' option. Select the option "View Master Product Tax Codes and Rules." It will enable you to choose the product tax codes that suit your products.
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What Deductions Am I Allowed To Claim On My Income Tax Return As An Amazon Seller?
Tax deductibles are nothing but expenses that the sellers can write off. Deduction of various costs helps lower the tax you have to pay. Here are some standard deductions you are allowed as an Amazon seller.
Shipping cost – The costs involved in getting the products to your Amazon facility or customers are tax-deductible.
Utilities and software – Amazon sellers usually rely on various tools and software for the smooth functioning of their business. All the tools used for tax calculation and shipping software are tax-deductible.
Education – If you provide any courses or classes to your employees to enhance their skills, the cost involved is tax-deductible.
Marketing expenses – To promote their product and services, the sellers leverage various marketing techniques such as billboards, print ads, podcast advertising, and more. All such expenses are tax-deductible.
Packaging – To make the products presentable, sellers focus on the packaging. The packaging cost involves the costs associated with the shipping labels, boxes, tapes, and padding. All these expenses are tax-deductible.
Professional Services – Amazon sellers may require the services of professionals, such as web designers, lawyers, copywriters, accountants, and more. The expenses of availing of professional services are tax-deductible.
Business Travel – The expenses are tax-deductible if you are traveling for business purposes.
Others – Other tax-deductible expenses include donations, subscriptions, home office costs, mileage, salary and benefits of employees, and Amazon fees.
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How Do I File And Pay My Taxes As An Amazon Seller In The United States Or Canada?
When it comes to filing sales taxes as an Amazon seller, there are several ways. One of the ways is to do it manually online. For this, you will have to first log into the website of your state's taxing authority. On the website, you can submit your sales tax return. Then you can make the payment through the payment gateway of the state.
If you want to save the hassle of manually filing and paying the sales tax, an effortless way is to leverage the sales tax software. It will enable you to file the sales tax return automatically and make the payment you owe.
Are There Other Things I Need To Know About Taxes As An Amazon Seller?
Now that you have a complete idea about selling on amazon taxes, here are a few essential points you must know.
- Consider filing the sales tax returns in the states where you have active sales tax permits. Even if Amazon collects the tax on your behalf, you must file the sales tax returns.
- Several states in the US allow Amazon sellers to keep a percentage of the sales tax. Make sure to take benefit of such discounts.
- When filing your sales tax returns, make sure to file zero returns. Consider filing your sales tax returns even when you have not collected the sales tax over a certain taxable period.
Conclusion
As an Amazon FBA seller, you must know your sales tax obligations. This guide has provided an overview of sales tax for Amazon FBA sellers, including who is responsible for the collection, what products are taxable, and how to pay taxes. If you have questions or need help with fulfillment, don't hesitate to contact Simpl. We're here to help you succeed as an Amazon FBA seller!
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