Amazon Sales Tax

Zamp Learnings:

• As a marketplace facilitator, Amazon is responsible for calculating, collecting, and remitting sales tax on sales sold by third-party sellers.
• The amount of sales tax charged on orders depends on several factors, such as the type of item purchased and the shipment or delivery address.
• While Amazon generally collects sales tax for online retailers, it fails to ensure that the tax amounts will satisfy your sales tax obligations. It may not collect in all states where you do business, especially if those states do not have marketplace facilitator laws.

As the second largest retailer, it’s no surprise that many online sellers use Amazon to run their business. The company generated $239.15 billion dollars in revenue in 2023 and acts as a marketplace facilitator, collecting and remitting sales tax on behalf of most sellers.

However, sales tax can still be confusing for Amazon sellers, especially when charging sales tax, how much to charge, when to collect it, and where to remit it. State sales tax varies by state, which is why you should consider a sales tax management solution like Zamp to help.

Below, we’ll explain the ins and outs of everything you need to know about Amazon sales tax.

Sales Tax for Amazon Sellers

Over the past few decades, businesses have moved from traditional storefronts to online stores on retailers like Amazon and Etsy. This has made navigating sales tax regulations more complex, as companies can easily sell across different jurisdictions and locations.

Does Amazon Collect Sales Tax for Sellers?

Amazon is a marketplace facilitator, which means it contracts with third-party sellers to promote their sale of physical property, digital goods, and services through the marketplace. States with marketplace facilitator laws require the online retailer to calculate, collect, remit, and refund state sales tax on sales sold by third-party sellers.

While Amazon charges and collects sales tax on most orders, the rate that is charged will depend on several factors, including:

• The identity of the seller
• The type of item or service purchased
• The time and location of fulfillment
• The shipment or delivery address of the order

In addition to ensuring that Amazon collects and remits the correct amount of state sales tax, you also have additional tax responsibilities. You must charge, collect, and remit sales tax for any sales not made on the platform, whether in person or through other online sites. Amazon also does not collect local taxes that may apply in certain jurisdictions.

What States Does Amazon Collect Sales Tax For?

Amazon collects sales tax in 47 states and Puerto Rico. The states with marketplace facilitator laws include:

How Sales Tax Works on Amazon

As mentioned, Amazon is a marketplace facilitator and typically handles state sales tax for most sellers' transactions. But to stay compliant with the states, you’ll need to understand the ins and outs of sales tax nexus to ensure your obligations are being met with your Amazon business.

How Sales Tax Nexus Works for Amazon Sellers

Simply put, nexus is determined by a physical presence or economic connection to a state or locality that requires you to collect and remit sales tax. There are two common ways to establish nexus:

• Physical nexus: You have a physical presence in a state, such as a studio, home, or warehouse.
• Economic nexus: This typically applies to any company with an online presence. It’s triggered in states when you meet the thresholds for sales activity.

Determining your sales tax nexus will guide your compliance strategy. This should include identifying where your business requires you to pay state sales taxes so that you can learn about filing requirements and deadlines.

Sales Tax Thresholds for Amazon Sellers

Each state establishes nexus thresholds to determine how much of a connection a business has with a state. Some states have a specific dollar amount that triggers nexus, while others look at the number of sales transactions. This is usually $100,000 in sales or 200 transactions.

Marketplace facilitators, like Amazon, must adhere to each state's rules. Maintaining sales tax compliance and keeping up with requirements can be challenging.

Which Products in Your Amazon Storefront Are Taxable?

As with all storefronts, you must determine which products to collect sales tax on. Each state has a list of taxable goods, and depending on the state and product category, some items or goods may be sales tax exempt.

In general, most food, clothing, and textbooks are exempt from sales tax. This means that the majority of Amazon sellers will be required to charge sales tax on their products.

Configuring Amazon for Sales Tax Collection

When setting up your Amazon storefront, there are several steps that will require you to understand tax laws and how your e-commerce or online business works. First, you must determine whether you need to charge sales tax for your online business. This includes looking at the nature of your products, your business location, and where most of your customer base lives.

Once you establish that you must charge sales tax in a specific state, you must register with the right tax agencies, typically a state’s Department of Revenue. This will allow you to collect sales tax in respective jurisdictions. Note that each state has different steps for obtaining a sales tax permit or license.

After receiving the necessary state registrations, you can configure your Amazon storefront. Amazon is responsible for collecting and remitting sales tax on your behalf, but you must ensure your store’s setting accurately reflects the tax rates and rules of the jurisdictions where you’re registered to collect tax.

How to Collect Sales Tax on Amazon

Now that you’re ready to get your Amazon storefront going, follow these steps for marketplace tax collection:

1. Set up your Amazon Seller Central account
2. Add your product tax codes and the states and local areas you wish to collect tax in 
3. Input updated tax information as you increase sales and meet new nexus thresholds
4. Check sales tax reports from Amazon to ensure they are paid correctly
5. Remit any sales tax not collected by Amazon and file your sales tax returns

Alternatively, you can download a sales tax app from your Amazon Seller Central account to manage all of this for you.

Best Practices for Sales Tax Compliance for Amazon Sellers

Amazon store owners are responsible for keeping sales tax rates and settings up-to-date to maintain compliance with changing tax laws and regulations. Here are the best practices to stay on top of sales tax compliance for your Amazon business:

1. Stay current on tax changes. Sign up for updates on tax regulations in the jurisdictions where you have sales tax nexus. Many state tax departments have email alerts that will keep you up-to-date on any tax law changes.
2. Consider automated tax management tools. Amazon may charge, collect, and remit sales tax on your behalf, but you have to stay on top of tax data to know if the right amount of money is being remitted to the states. Automated tax tools like Zamp inform you of tax rate changes and offer compliance features to help you grow your business.
3. Conduct regular tax reviews. Schedule time to review your tax settings on Amazon at regular intervals — bi-weekly, monthly, quarterly, or bi-annually. This cadence should align with your company’s sales patterns and tax filing schedule.
4. Keep detailed records. As a business owner, you should maintain records for all your Amazon transactions, tax calculations, and sales tax filings. This not only fulfills a compliance requirement but can be invaluable if you are audited by the IRS or a state’s Department of Revenue.
5. Get advice from professionals. While automated sales tax management tools can help manage your sales tax day-to-day, a tax expert can help you if you find yourself in a complex situation or face a significant change in your business.

Streamlining Tax Filing Processes for Your Amazon Storefront

If you want to streamline your tax reporting and remittance process to avoid audits for your Amazon storefront, here are some things you can do:

Why Choose Zamp?

Managing sales tax on your own can be a real headache. Book a call with Zamp to see how we can simplify your process. Our in-house experts have over 200 years of combined sales tax experience and can handle the day-to-day management of sales tax for you.

Sales Tax for Amazon Sellers: FAQ

Here are frequently asked questions related to Amazon sales tax: