Online sellers who use Amazon FBA (Fulfillment By Amazon) are running out of time to benefit from a partial
exemption from uncollected sales tax in 23 U.S. States and Washington, D.C.
Why do Amazon FBA sellers need a tax amnesty?
Over half of all Amazon items are listed on third-party marketplaces.
Online shoppers are not required to pay tax if they purchase items directly from Amazon.
However, this is the case if they choose to order from a third party merchant.
This is due to a 1992 Supreme Court decision that retailers can only collect taxes on sales in states that they have nexus.
A legal term that describes a physical presence such as a store or warehouse, or employees.
Amazon’s FBA program, however, complicates the matter and some states have opted to replace their traditional
approach to nexus by one that allows them to collect taxes from businesses that do business virtually.
Once an online seller has their merchandise stored in an Amazon fulfillment center and shipped to them, they are required by several states’ laws to collect sales tax.
With more than 70 fulfillment centers located in more than 20 states now, thousands of third-party sellers could be liable for back taxes totaling $2 billion.
How does the tax amnesty program work?
Washington, D.C., along with 23 other states, are members of the Multistate Tax Commission’s National Nexus Program.
This voluntary disclosure initiative allows marketplace sellers to begin collecting sales tax in certain states in return for partial amnesty on back taxes.
The program will run from Oct. 17 to 17, with applications starting on Aug. 17.
What FBA sellers should consider
FBA sellers must register for tax collection in order to be eligible to receive all sales taxes (not only those that occur through Amazon’s marketplace) in each state by Dec. 1.
Small businesses who register in multiple states may find it difficult to pay sales taxes.
They can be as high as 7.25% for California and as low as 2.9% for Colorado.
Amazon FBA sellers who don’t sign up for the program risk being audited.
They may be required to pay any uncollected sales taxes out of pocket as well as any late fees and interest.
Why all online sellers should become compliant sooner rather than later
Washington and Minnesota recently passed laws that required companies like Amazon and eBay collect sales tax on goods sold via their platforms by third party sellers.
South Carolina sued Amazon for $12.5million in back taxes, penalties, and interest owed from third-party sales.
Massachusetts obtained a court order forcing Amazon to reveal the identities of all sellers who have been selling on its marketplace since 2012.
Are you an Amazon FBA Seller?
Have an idea to know where your products were stored before they are shipped to customers to avoid the U.S. tax fight.
This information can be found in your seller dashboard. You can determine if you owe any sales tax in any of the states from which your goods were shipped.
Also, this will help you decide if the amnesty program for your company is right for you. An Amazon FBA Calculator can help you estimate your potential revenue.
Automated Amazon repricing software is a good investment if you are concerned about charging tax.
It allows you to instantly reprice your inventory to win the Buy Box.
You can also enter your shipping costs and calculate the net margin for your SKUs to ensure you always make a profit.