Setting Up Sales Tax Collection on Amazon Seller Central for Dummies

Last Updated:
August 27, 2018
Getting Started With Amazon Sales Tax

The repercussions of violating any tax code related to the Amazon seller's business befalls only the seller, with Amazon completely exonerated. It, therefore, goes without saying that every Amazon seller is responsible for the local tax nexus applicable to their Amazon business.

The Essentials for the Setting Up of the Sales Collection Program on Amazon Seller Central

The following are essentials that must be put in place before setting up a sales tax collection program on Amazon seller central:

  1. An Amazon Professional Sellers Account: The sales tax collection program is not available to individual account holders.
  2. Details of tax nexus applicable to the state which hosts the physical presence of the business.
  3. The seller tax ID number and registration details: The seller tax ID must pertain to the state in which you obtained a sales tax paperwork from and which also ties your business to a sales tax nexus.

How To Register For the Sales Tax Processing Program on Amazon Seller Central

  1. Login to Amazon Seller Central with your credentials.
  2. Open the "settings" menu.
  3. Open the "Tax settings" from the drop-down menu. On this page, you'll find a comprehensive guide to setting up the sales tax collection program, as well as some vital information such as the tax codes for specific products.
  4. Next, sort out the Tax Collection, gift wrap, and Shipping & Handling Tax Obligations Settings. This section allows you to do a number of things including:
  5. Choosing a product tax code: If you're able to choose the precise tax codes for each product (which is such a herculean task given the fact that different states charge different tax rates for the same product), you're better placed to stave off extraneous taxes on your products.
  6. Choosing the state and city or county which has a tax nexus applicable to your Amazon business: This state is where your sales tax ID is registered in.
  7. Deciding whether an adjustable or a fixed sales tax rate is to be applied to each product.

Once these selections are in place, your sales tax collection program on Amazon central is set to roll and you can set your focus on other aspects of your business and not break a sweat over your sales taxes.

The Difference Between Taxes Imposed On Amazon and Those Imposed On Third Party Amazon Sellers

Amazon tax map

Amazon faces tax impositions for the products it sells to consumers across states. But this is not to be confused with the tax imposed on third-party sellers. The onus of identifying tax nexus applicable to the geographic situation of a third party seller rests on the individual Amazon seller. However, Amazon offers to assist individual sellers in collecting their sales taxes for every sale generated on the Amazon marketplace, as long as the individual sellers supply details pertaining to the relevant tax nexus. This is a great alternative for sellers who're wary of the hassles associated with paying taxes out of a personal purse.

The Pitfalls Associated With The Collection of Sales Tax on Amazon Seller Central

Why do so many Amazons sellers flounder in their sales tax management? For starters, given the nature of the Amazon FBA, the setting up of an FBA business calls into effect sales tax nexus pertaining to multiple states. Due to lack of proper tax advice, many Amazon sellers are always confronted with several sales tax liabilities. However, since many individual states do not make thorough audits of Amazon seller's tax returns, these violations just slide by, but nonetheless, remain as pending sales tax liabilities that keep accumulating. Tax returns is actually a relatively easier issue for Amazon sellers who aren't into FBA. This is due to the fact that the location of offices and warehouses are clearly known and therefore the applicable tax nexus is easily determined. But be that as it may, the set up of the tax sales collection program on Amazon is a rather rigorous affair that throws off many applicants at several points. The interface and instructions on the Amazon seller central tax settings page often come off as intricate and demanding.

Some Key Considerations Pertaining To The Collection of Sales Tax on Amazon Seller Central

1. Tax Nexus

A tax nexus is activated when a business establishes a physical outlet in any state. This is a key consideration essential for the set up of the sales tax collection program on Amazon, as well as for an eCommerce site looking to establish a physical location in any state. The tax nexus related to an individual Amazon seller's business takes into account details such as the location of the FDA warehouse, as well as affiliates of the business domiciled in that state. Nonetheless, the services of a tax attorney cannot be recommended highly enough for the enrollment in the sales tax processing program on Amazon seller central.

Tax nexus issues are one of the most daunting challenges that Amazon sellers constantly face. Every now and then, an Amazon seller runs a risk of violating a tax nexus. However, since there's yet to be a national tax policy that caters specifically for Amazon FBA, only a few states apply a stringent enforcement of the relevant regulations that could penalize these frequent tax nexus violations. Whether you're running your Amazon business from a physical location in the US or not, you still need to treat tax nexus as a potential risk, as you can stir the pot if you rake in a certain volume of sales in any US city.

2. The Tax Collection Process:

The Amazon sales tax processing program is designed to collect taxes directly from revenues generated by sellers in the Amazon marketplace, provided the sellers make available information concerning the applicable tax nexus for the particular states which host the physical presence of their Amazon business. Amazon charges 2.9% of the gathered sales tax as service fees. To initiate the program, the seller must first obtain relevant tax information including the sales tax ID number and then proceed to load the relevant details on the tax settings in the seller support. 

As a result of the complexity of the setting, many users always end up forgetting to specify some vital details such as the county, city, or state where the business operates physically. Another intricate segment of the tax settings is the section which requires the seller to specify the appropriate tax code for each product being sold. 

If the seller is clueless about the tax code pertaining to a particular product, there is an option that allows you to use a default tax code for a product, which is available in the Tax Manager tools page. This option allows Amazon to disregard the sales tax ID registered by the seller as we as any local tax code applicable to the product. Amazon applies the "A_GEN_NOTAX" code to the particular product. 

The "A_GEN_TAX" code is the predecessor of the "A_GEN_NOTAX" code used to ensure the collection of tax on every product sale by charging a rate which is an approximation of the existing tax codes for products. This blanket code can charge tax rates that are higher or lower than the real tax rates of each product. Therefore in order to avoid undue taxes on products being sold, it is imperative for sellers to examine the wide array of product tax codes available in the seller support guide.

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