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 laws. Either way, you may be wondering if you need to report those earnings to the IRS this tax season.
Below are some tips for making sure your forms are in order with all qualifying deductibles in place. This includes things like sales tax and shipping fees.
According to Amazon, all sellers who meet both of the following conditions will get their 1099-K form in the mail (or by email, depending on your preferences) by January 31: If you’d like to see the form on Amazon, you can go to Seller Central Reports Tax Document Library.
If you made a profit on Amazon, you will need to report the income whether you received a 1099 or not. One exception is if you used Amazon to sell of a few household items for less than the original purchase price.
For instance, some states will tax clothing while others like Minnesota, New Jersey, Vermont and Pennsylvania don’t. If you’re a seller on Amazon, you’ll need to collect sales taxes on behalf of the government, depending on the products you sell and where your sales tax nexus is located.
For each state where you have a nexus, you’ll need to collect sales tax from buyers. You will then need to report those taxes, oftentimes by individual district, to the IRS.
To make life easier for yourself, it’s best to keep an eye on your sales tax on a regular basis throughout the year. Like any other self-employed individuals, Amazon sellers can claim deductibles on things like home office expenses and education costs.
Shipping costs, including fees and supplies Home office costs, e.g. electronics, furniture, supplies Amazon fees Mileage Donations, e.g. damaged goods donated to charity Subscriptions Education pertaining to online business and e-commerce Software for taxes and inventory Online advertising, e.g. ads, business cards, print materials Employee salary and benefits Consultant fees, e.g. accountant, lawyer, web designer, copywriter Long is a freelance writer whose contributions have appeared on Atlas Obscure, Screen Rant, Culture Trip, Buffer, and Tech in Asia.
She writes about tech, HR, marketing by day and is a screenwriter by night. So, it goes without saying, despite what you’ll read in this article, you should always consult a qualified CPA in your state when it comes to your businesses tax obligations.
That said, the aim of this post is to bring some clarity to state sales tax as it applies to Amazon sellers in 2020. There’s a lot of confusing, outdated information on the internet when it comes to state sales tax and Amazon sellers.
Worse, many of the top-ranking articles on Google are written by companies selling you their tax-filing services, and they may be just slightly biased. And none of it was made any clearer by the fact states were still using woefully out of date laws enacted way before the internet even existed.
To combat this, states began fall back on an old law called sales tax nexus. Sales tax nexus proved very hard to enforce though when it came to the millions of smaller sellers selling on Amazon.
When you view this report, you will likely find your inventory is stored in far more states than you actually ship products to. Amazon has warehouses in dozens of states, and they can move your inventory around at will so this is the real complicating factor.
But the other 36 put the responsibility of calculating, collecting and remitting sales tax on behalf of remote sellers firmly on Amazon ’s shoulders. Five states, New Hampshire, Oregon, Montana, Alaska and Delaware (aka NOMAD) don’t have sales tax.
Alabama Arizona Alaska (no sales tax) Arkansas California Connecticut Delaware (no sales tax) Georgia (starts April 1st, 2020) Hawaii Idaho Indiana Iowa Kentucky Maine Maryland Massachusetts Michigan Minnesota Montana (no sales tax) Nebraska Nevada New Hampshire (no sales tax) New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon (no sales tax) Pennsylvania Rhode Island South Carolina South Dakota Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming However, they also have a thing called “Home Rule City Sales Tax” that isn’t covered by that legislation, and so must be paid by sellers.
This is because Colorado is a ‘Home Rule State.’ That means they give flexibility to the municipal governments within the state to override certain laws at a state level and make their own law, e.g. the amount of sales tax they charge. Amazon started collecting sales tax on behalf of sellers in Illinois on January 1st, 2020.
As soon as Illinois’ marketplace facilitator legislation kicked in on Jan 1st, Amazon stopped collecting and paying sales tax AND ROT, and passed the burden of collecting ROT onto sellers. Although Washington State passed a Marketplace Facilitator law that came into effect on January 1st, 2018, they also have a separate Business & Occupation Tax (Bio).
So if you sell in Florida but have no physical presence there, keep an eye on that one to check you don’t exceed the thresholds. Storing property for sale in the state, including merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Kansas in a warehouse owned or operated by Amazon, automatically triggers Kansas physical nexus laws.
So if you have inventory in an FBA warehouse in Kansas, you should be registering to pay sales tax there. Also, according to the Kansas Department of revenue, they started enforcing economic nexus for remote sellers who have no physical presence from October 2019.
However, as they stipulated no minimum $ threshold on sales, the Kansas Attorney General determined the Kansas Department of Revenue lacks the authority to tax remote sales without providing safe harbor for small sellers. On January 29th this year, the Louisiana Supreme Court held that Jefferson Parrish couldn’t hold Walmart.com liable to collect and remit sales tax on transactions made by third party sellers through their online.
According to tax compliance firm Avalara, “Businesses are required to register with the Louisiana Department of Revenue and to charge, collect, and remit the appropriate tax when they have a physical presence in Louisiana, such as a retail store, warehouse, inventory, or the regular presence of traveling salespeople or representatives trigger a sales tax collection obligation in the state.” They also have a physical nexus that includes inventory stored in their state (i.e. at an FBA warehouse).
If you have inventory stored in the state you’re required to register with them, and collect and pay sales tax. So even if you have one unit sitting in an FBA warehouse there, you should be registering to pay sales tax.
As of July 1, 2019, Tennessee brought in economic nexus laws with a 12 period threshold of $500,000. So if you have any inventory sitting in an FBA warehouse in Tennessee, you have to register for, and pay sales tax.
Given the complexity, some sellers have actually elected to create separate companies for their non- Amazon sales. Sticking your head in the sand used to be an option when it came to paying sales tax on items you sold on Amazon.
But moving forward, states that don’t have marketplace facilitator laws, or do but have weird additional taxes that aren’t paid by Amazon, are likely to be far more aggressive when chasing Amazon sellers for taxes owed. Registering for, and filing all of these taxes is undeniably a pain in the a, but my advice would be if you’re serious about building a brand, speak to a qualified CPA about all of your sales tax obligations, including the additional laws in Colorado, Washington State, and Illinois.
John Rob has been writing copy for almost 20 years for brands like Google, Beats By Are and Sony PlayStation, to name just a few. He currently lives in Los Angeles where he spends his days consulting for brands on digital marketing and copywriting, and tinkering with classic cars.
If you’re an Amazon seller living in the U.S., then you’re probably aware that tax time is right around the corner. If you don’t, you risk losing your ability to sell on the platform.
But, if you haven’t heard from them about your 1099-K, you can find the form by following these simple steps: If Amazon didn’t issue you a 1099-K form, contact Seller support.
First, make sure you’re reporting the unadjusted total gross sales for the entire year. Therefore, if you made a sale on December 31, 2019, but it didn’t ship until January, it won’t be on the report.
Just follow these directions: Go to Seller Central and click the ‘Reports’ tab. Next, select ‘Date Range Reports.’ Now, click ‘Generate a statement.’ In the ‘Generate Date Range Report‘ popup, do the following: Select report type: ‘Summary.’ Select reporting range: ‘Monthly’ or ‘Custom,’ and the specified date information.
Calculate your unadjusted gross sales by adding the amounts in the report columns together; they’re listed in the two charts. Unless your state requires you to have one, you don’t have to have a business license to sell on Amazon.
Of course, if you have a larger Amazon business, with employees, offices, and other big-time expenses, it’s probably a good idea to get one. Many sellers incorporate as Limited Liability Companies (LLC), as not only will a Limited Liability Company (LLC) designation protect you from having to take any personal responsibility for issues your business might run into, but it’s also great for tax purposes.
If you operate as a business in your state, you need to file Schedule C, or form 1040. If you go this route but don’t want to hire an accountant, then I strongly recommend using a bookkeeping software like Intuit Quickbooks.
For this reason, keeping track of sales tax when you’re selling in multiple states is difficult. But, in general, the definition for ‘ sales tax nexus ‘ is: the place where your business has a physical presence.
Typically, the government will tell you to file monthly, quarterly, or annually. Failure to file on time can result in the termination of your sales tax permit.
Employee salary and benefits Consultant fees (e.g. accountant, lawyer, web designer, copywriter, etc.) Hopefully this article has helped shed some light on the things you need to know in order to file taxes for your Amazon FBA business correctly.
He shares his Amazon sales knowledge as a professional writer and social media influencer. Dave lives in Norman, Oklahoma with his wife, Tracy, son, Jack, and a whole mess of pets.