Sales Tax Requirements for New Amazon FBA Sellers
As a new Amazon FBA Seller your sales tax requirements have changed dramatically since June 2018, with the U.S. Supreme Court Case Wayfair vs South Dakota.
The good news is new Amazon FBA sellers just starting to sell on Amazon.com, may not need to register for any sales tax permits for several months.
As a new seller, most likely, you may not need support for sales tax compliance for another 3-6 months, as you develop sales tax nexus in various U.S states.
The basic overview of what you need to know for your sales tax requirements as a new Amazon.com FBA seller:
- Do you sell a product subject to sales tax in the U.S.? The odds are yes; 97% of all products sold are subject to sales tax. Sales tax is added to the sale. If you sell products like supplements, depending upon the ingredients, the supplements may be taxes in some states and not in others.
- Which states do you have nexus? Nexus means a presence. There are 45 US states with sales tax, plus the District of Columbia (D.C.). As a seller, if you have nexus in a state, you or your marketplace facilitator (like Amazon) have a responsibility to collect and remit sales tax on sales to residents in that state. There are several types of nexus; the most common are the following:
- Physical Nexus (FBA stock). There are 30 states that have FBA warehouses where your stock is shipped to a customer. If you have stock in one of these 30 states, that creates physical nexus. Once you have physical nexus, you have the responsibility of collecting and remitting sales tax on any sales to customers in those states. The great news, as a new seller, Amazon is likely ALREADY collecting sales tax for you in those states, so you may only need to register for a sales tax permit/license, and basically file a zero or information sales tax return. Our PDF link below will make it easy for you to determine from your own Amazon reports when you first had stock.
- Economic Nexus. This was developed as a result of the 2018 US Supreme Court Case, Wayfair vs South Dakota. Basically, the states developed thresholds of sales and or transactions and, if you pass those thresholds (most common is $100K in sales or 200 transactions), you need to collect and remit sales tax for all new sales in that state after that point. Again, Amazon may already be collecting in those states, so all you need to do is register (in most cases) and file zero or information returns. There are currently 44 economic states.
- Marketplace Nexus. This is where the marketplace facilitator (Amazon, eBay, Walmart) that offers a platform for third-party sellers, like yourself, is responsible for collecting and remitting sales tax once the marketplace facilitator passes a threshold. This is great news for you, as an Amazon seller. This means Amazon will collect and remit on your behalf; but, in most states, you still need to register and file sales tax returns (even if zero tax is owed on your part). There are currently 38 marketplace nexus states, and Amazon is collecting and remitting on your behalf in 34 of them.
- Amazon is collecting and remitting in 34 states. This number will increase over time. There are 8 FBA states currently where you may have stock, and Amazon is not collecting. These include Florida, Georgia, Illinois, Kansas, Michigan, North Carolina, Tennessee, and Wisconsin.
- There are 12 economic nexus states that Amazon is also NOT currently collecting and remitting and they include: Arkansas, D.C., Georgia, Hawaii, Illinois, Kansas, Louisiana, Michigan, Mississippi, North Carolina, Tennessee, and Wisconsin. As you can see, there is some overlap with the 8 FBA states where Amazon is not collecting.
- Washington is the main state where Amazon is collecting and remitting, yet, you are expected to register if you have nexus. The states are making changes in this process and more and more are not expecting you to register if you only sell on Amazon, a marketplace facilitator, in their state.
In summary, you need to determine the following your sales tax requirements:
- Is your product subject to sales tax (most likely)?
- In which states, after you are selling for 60-90 days, will you have FBA stock (Amazon reports will provide this information)?
- In which states (if any) have you passed the economic thresholds, either sales or transactions?
- Get registered in each state where you have nexus. This will result in you having a sales tax permit in the state.
- The sales tax registration process takes about 4-10 weeks when the responsible party of the business does not have an SSN.
- File sales tax returns (most common is a quarterly basis).
- Most states require you to file an information return with zeros or note that you are an Amazon seller.
- There are still a few states where Amazon is not collecting and remitting (likely to change soon) where you want to register as soon as you have sales tax nexus and pay sales tax (paid by your customer) on sales in those states.
Finally, you won’t likely be ready for sales tax compliance until about 3-6 months into your U.S. Amazon business. You will be behind in a few states on one quarter or a few weeks of sales tax returns, but that is common.
Your goal is to stay focused on making sales, at this point with the start of your Amazon.com FBA business.