Sales Tax Guide. Part II: Sales Tax for Amazon Business and Sales on eBay, Walmart, Etsy
In the first part of this article, we looked at what Sales Tax is and when it occurs. We went into detail on the concept of Nexus – the relationship between the online seller and sales tax. We touched on the issue of taxable goods, the ties that arise when goods are stored in FBA warehouses, and exceeding the sales limit set by the various states.
If you went straight to the second part of the article, we strongly recommend that you at least read the text of the first part >>.
In this part, we will understand the algorithm for entrepreneurs selling in the USA through Amazon, eBay, Walmart and Etsy, as well as answer some of the most popular questions about Sales Tax.
Before we start, an important disclaimer: in this article we consider the case when you work with Amazon using the Private Label model without a physical presence in the USA (for example, in Ukraine) and without a company in the USA, but using Amazon FBA centers – the most common case in our reality today. We will look at arbitrage (resale of goods) business models in Part 3, when we talk about Resale certificates.
And let’s start analyzing marketplaces, as you already understood, with Amazon. For the rest of the major American marketplaces the algorithm is the same.
In Part I, we promised to take a closer look at Inventory Nexus. That is where we will start.
From a state’s perspective, any online seller who stores their inventory on their property has a Sales Tax nexus because they use the state’s infrastructure (e.g., the same roads to transport goods). That is why most states’ sales tax laws say that storing goods on their property creates a Sales Tax nexus.
If you want to delve more deeply into this topic, this link >> provides links to the laws of each individual state.
As of this writing, the following states have FBA centers (only 36 states so far):
• New Hampshire;
• New Jersey;
• New York;
• North Carolina;
• South Carolina;
You can find up-to-date information on FBA center locations at this link >>.
This list does not mean that you have a nexus with respect to Sales Tax from each of these states. Amazon does not store your inventory in all of them at the same time. You can find out which states your item is stored in from SellerCentral by downloading the Amazon Inventory Event Detail report.
In the FBA report, the centers will be coded the same as on this page.
That is, BWI1 is a warehouse in Virginia, and BNA5 is in Tennessee.
We will talk about what to do with this information in the second part of this article. Now let’s continue to look at the concept of Sales Tax Nexus.
Exception to the FBA rule
Almost every state that has Amazon filfillment centers has the Merchant Marketplace Assistance Act. Moreover, this is not just good news for Amazon entrepreneurs. States with filfillment laws consider online marketplaces (such as Amazon, Walmart, eBay, and Etsy) to be responsible for collecting sales tax on behalf of their third-party sellers.
Such laws benefit states because they can collect more sales tax from fewer entities, making tax compliance easier. For sellers, the upside is that sales tax for certain transactions is handled by the intermediary. However, in many cases, it is not as simple as it may seem.
The Marketplace Facilitation Act grew out of the idea that the state collects tax from one entity rather than tracking thousands of small sellers, because not all of them have nexus immediately (we talked in detail about the economic ties to the sales tax in Part I). In addition, that is generally good news for online sellers. But…
If you sell on a marketplace (like Amazon), it has to collect and remit sales tax on your behalf. But if, for example, you sell some of your goods through your own store on Shopify – collecting and paying Sales Tax becomes your problem (we will talk about these cases in the third part of this article).
Do marketplaces (Amazon, eBay, etc.) make it easier to collect and pay Sales Tax?
Yes, of course. Most of the states that charge Sales Tax have passed laws requiring marketplaces to collect sales tax for third-party sellers operating on their platform.
While in the case of your own website, you need to take care to make sure that the shopping cart clearly states the Sales Tax amounts for your USA buyers, in the case of Amazon, eBay, Walmart and other marketplaces, things are much easier – the marketplace automatically charges sales tax to all customers at checkout.
Amazon system automatically bills your customers, including sales tax. What’s more, even the shipping taxes in states like Arkansas, Georgia, Connecticut, Hawaii, the District of Columbia, Michigan, Minnesota, New Jersey, New York, and Ohio are included.
For its labors, Amazon charges a modest 2.9% commission on each transaction when it collects sales tax from your customers.
Problems with Sales Tax collection through marketplaces
If Amazon and other platforms do everything for us, maybe it is time to close this article and go do things that are more important. Obviously, no. In fact, it is not that simple. There are three important points. Let’s take Amazon as an example:
1. Amazon is still not collecting Sales Tax for all states. Missouri is left out of the marketplace service and will be included in the program on January 1, 2023 (watch out for marketplace posts).
2. Sales Tax Debts. The last states to pass Sales Tax legislation on Internet sales were Florida and Kansas on July 1, 2021. Missouri signed a similar law on June 30, 2021, but it will not take effect until January 1, 2023, which means that the sales tax for that state will be the responsibility of sellers until that time.
Also, keep in mind that the USA tax authorities plan to count periods BEFORE Amazon started with Sales Tax. That is, if you have an economic Sales Tax correlation for any states (the sales and/or sales thresholds for the reporting period have been exceeded), then you may receive what is called a “late notice” demanding payment of the tax.
We should not hope that the states will forget or forgive. But how this will be implemented in practice in the case of salespeople working remotely, and whether it will be implemented at all – is not quite clear yet.
The table below shows a chronology of how marketplaces started collecting Sales Tax for each state. Not all marketplaces were able to find the exact dates, so if there is no date in some column – it does not mean that the marketplace does not collect Sales Tax for you:
|Alabama||January 1, 2019||July 1, 2019||April 1, 2019||July 1, 2019|
|Alaska||April 1, 2020||N/A||N/A||April 1, 2021|
|Arizona||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Arkansas||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|California||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Colorado||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Connecticut||December 1, 2018||April 1, 2019||December 1, 2018||February 1, 2019|
|Delaware||No Sales Tax||No Sales Tax||No Sales Tax||No Sales Tax|
|District of Columbia||April 1, 2019||May 1, 2019||April 1, 2019||April 1, 2019|
|Florida||June 1, 2021||July 1, 2021||N/A||July 1, 2021|
|Georgia||April 1, 2020||April 1, 2020||December 1, 2020||February 1, 2020|
|Hawaii||January 1, 2020||January 1, 2020||January 1, 2020||January 1, 2020|
|Idaho||June 1, 2019||June 1, 2019||June 1, 2019||June 1, 2019|
|Illinois||January 1, 2020||January 1, 2020||January 1, 2020||January 1, 2020|
|Indiana||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|Iowa||January 1, 2019||January 1, 2019||January 2, 2019||January 1, 2019|
|Kansas||June 1, 2021||July 1, 2021||N/A||July 1, 2021|
|Kentucky||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|Louisiana||December 30, 2020||July 1, 2020||N/A||July 1, 2020|
|Maine||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Maryland||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Massachusetts||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Michigan||January 1, 2020||January 1, 2020||January 1, 2020||January 1, 2020|
|Minnesota||October 1, 2018||January 1, 2019||October 1, 2018||October 1, 2018|
|Mississippi||July 1, 2020||July 1, 2020||July 1, 2020||July 1, 2020|
|Missouri||January 1, 2023||N/A||N/A||N/A|
|Montana||No Sales Tax||No Sales Tax||No Sales Tax||No Sales Tax|
|Nebraska||April 1, 2019||May 1, 2019||May 1, 2019||June 1, 2019|
|Nevada||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|New Hampshire||No Sales Tax||No Sales Tax||No Sales Tax||No Sales Tax|
|New Jersey||November 1, 2018||May 1, 2019||March 1, 2019||May 1, 2019|
|New Mexico||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|New York||June 1, 2019||June 1, 2019||June 1, 2019||June 1, 2019|
|North Carolina||February 1, 2020||February 1, 2020||N/A||February 1, 2020|
|North Dakona||October 1, 2019||October 1, 2019||N/A||October 1, 2019|
|Ohio||September 1, 2019||September 1, 2019||September 1, 2019||September 1, 2019|
|Oklahoma||July 1, 2018||July 1, 2019||January 2, 2019||August 1, 2018|
|Oregon||No Sales Tax||No Sales Tax||No Sales Tax||No Sales Tax|
|Pennsylvania||April 1, 2018||July 1, 2019||February 1, 2019||April 1, 2018|
|Rhode Island||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|South Carolina||April 29, 2019||October 1, 2019||May 1, 2019||February 1, 2019|
|South Dakota||February 1, 2019||July 1, 2019||March 1, 2019||March 1, 2019|
|Tennessee||October 1, 2020||October 1, 2020||N/A||October 1, 2020|
|Texas||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Utah||October 1, 2019||October 1, 2019||October 1, 2019||October 1, 2019|
|Vermont||June 7, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|Virginia||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|Washington||January 1, 2018||January 1, 2019||October 1, 2018||January 1, 2018|
|West Virginia||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
|Wisconsin||January 1, 2020||January 1, 2020||January 1, 2020||January 1, 2020|
|Wyoming||July 1, 2019||July 1, 2019||July 1, 2019||July 1, 2019|
Do not be surprised to see Alaska on this list, which has no Sales Tax at the state level. There are local sales taxes there, and Amazon takes them into account, so do not worry about it.
So what should you do about it? Let us find out.
Algorithm of actions for online sellers regarding Sales Tax (using Amazon as an example)
The first thing you will need to do is determine wuth which states (which have Sales Tax) you have a relationship with: inventory nexus or economic nexus.
1. Determine the presence of relationships
We recommend you to start by determining the correlation by the principle of storing your goods. This is easy and straightforward: you must pay Sales Tax in all states where Amazon stores your goods in its FBA warehouses.
At the beginning of this article, we showed you how to upload a report for your FBA Inventory from Seller Central. When you open the downloaded *.csv file, you will see a picture like this:
By codes of fulfillment centers, you can find out in which states your goods are stored, and thus there is a nexus for paying Sales Tax. Check which code corresponds to which warehouse on this page >>.
The picture DFW-7 shows a warehouse in Texas, ONT-2 – in California, and CVG-2 – in Kentucky.
It is a little more complicated to determine the economic relationships. For that, you will need the table with the thresholds for each state from the first part of this article, or you can find a more complete version of it on this page >>.
If you scroll through the table, you will notice that the most frequent tolerances are 200 transactions and/or sales over $100,000 per year. If you are just starting your business and your annual sales have not reached the $500,000 mark, and the number of units sold is no more than a couple or three thousand units per year, it is likely that these sales have been evenly “spread out” throughout the United States and you have not had an economic nexus with any of the states.
If you have been doing business on Amazon for a long time and have been shipping goods by container, you will need to check your sales in more detail for economic correlations with individual states in terms of Sales Tax payments. We recommend checking not only the most recent period, but also earlier periods.
In the case of Amazon, for both the inventory nexus and the economic nexus, you should only be interested in the state of Missouri. Amazon “closes” on its own all other states.
2. Get permission to collect sales tax in the right states
The first step is to figure out where your goods are stored, i.e., which states you have an inventory nexus and Sales Tax collection obligation with. Next, you must obtain a sales tax collection permit for each such state. Remember, it is illegal to collect Sales Tax in the USA without a permit.
To register for a state tax permit, visit its Department of Revenue website and follow the instructions. Once you register, remember to check your email so you do not miss any follow-up emails from the state Department of Revenue, they can be very important.
How do I find the Department of Revenue of the state you are interested in? As usual, ask Google with a simple query for “register for sales and use taxes [insert state name].
Initial difficulties may arise during the registration process.
As a rule, the following information will be required for registration (requirements may vary from state to state):
- Name of your company (if any);
- Work address (the address must be reliable with the ability to receive/send mail, and must not have the status of a mail server or similar services);
- EIN or ITIN number. Often both numbers are needed (for the business and separately for its owner), sometimes it can be replaced, for example, in Florida they ask for a visa number for foreigners;
- Phone number and email address.
Note that registration is often not free (on average, prices range from $16 to $50).
How to get an ITIN number we have already written in our blog >>, but sometimes there is a situation that the online system for registration of a Sales Tax payer does not accept applications from abroad. In this case, you will have to contact the relevant state Department of Revenue by phone, and the application may have to be sent by mail.
The second annoyance that may arise: Most states only accept sales tax payments using Automated Clearing House (ACH) transfers from U.S. bank, which means you may need to open an account in U.S. bank.
We also wrote about how to open a U.S. account here>> и here>>. However, you may not need an account to file a Sales Tax “zero return”.
One more important point: the Department of Revenue website of the state you want, in addition to the registration function (#1 in the picture below), often provides additional background information on the Sales Tax collection (#2), which we recommend you read.
3. Making changes to the Seller Central sections responsible for Sales Tax
The last thing you need to do is make changes to the Seller Central settings. How to do this correctly is described in detail in the Amazon Seller Central help center. For the purposes of this article, we will just focus on the basics.
To find the Seller Central section responsible for taxes, go to Settings > Tax Settings.
On the page that opens, you can see information on states where Amazon already collects Sales Tax. If you do not find the state you want on the list, you can add it via the “Add States” button.
When you add the state you want, you can enter the State Tax Registration Number that you already got when you registered as a Sales Tax payer in the state you want. In Amazon’s case, it is Missouri only; you cannot edit other states for which the marketplace ALREADY collects Sale Tax.
When adding a new state, do not turn off jurisdictions. As you may remember from the first article on Sales Tax, tax rates can vary at the state, regional, and city level, and there is also Sales Tax on shipping services. Leave all the checkboxes checked – so Amazon can collect Sales Tax more correctly for that state.
Just below, on the same page, there is a Tax Calculation Rules section where Amazon allows you to set the Product Tax Code. Keep in mind that choosing this code affects the Sales Tax rate that Amazon will work with.
We recommend that you look at the Product Tax Code drop-down menu and find your product category there. Usually it is not hard to identify a product category by its abbreviation. Here are a few examples:
- A_CLTH_GEN – code for clothes;
- A_CLTH_HBAGS – for bags;
- A_FOOD_GEN – for food;
- A_HLTH_COSMETIC – for medicinal cosmetics.
If you could not identify the one in the list of codes that belongs to your product category, you can set A_GEN_TAX. If for some reason you do not want to charge sales tax on a certain product, you can mark it with the code A_GEN_NOTAX.
4. Submission of tax returns
After you have figured out the Seller Central settings, all you have to do is file your tax returns in the states where you have a tax nexus. And yes, in the case of Amazon, we are only talking about the state of Missouri.
You can do this online using your registration information for each Department of Revenue.
Another important point: Make sure you know how often Sales Tax returns must be filed. Most states require monthly or quarterly filings. You can find information on the Department of Revenue website for your state.
In conclusion, let us take a brief look at the features of other marketplaces. The algorithm for working with them is the same. The only difference may be the settings and states you have to work with.
eBay charges sales tax on many purchases on behalf of the seller, without the seller having to set anything up at all. This process complies with reseller laws on marketplaces and happens automatically during checkout. No Sales Tax is withheld from buyers outside the USA.
As with Amazon, eBay does not collect Sales Tax in all states (Missouri is left out again). For more information on the states where eBay collects Sales Tax instead of you, see this page >>
If you are required to collect sales tax in a state for which eBay does not collect on your behalf, you should fill out the tax table that eBay provides to let them know how much to charge. It looks like this:
Unfortunately, eBay’s sales tax collection mechanism is not as robust as other marketplaces.
As you remember, some states do not tax some items. For example, textbooks are tax-free in Minnesota, gold coins are tax-free in Washington state, and used items sold by individuals are tax-free in most states.
That is where eBay’s algorithm flaw comes in. The site ignores these rules and often charges sales tax on tax-exempt items. At the moment, there is no “cure” for this, but hopefully in the near future there will be some changes to eBay’s algorithms and the situation will change.
Effective March 18, 2021, Walmart removed the requirement for sellers on its platform to have a U.S. address or U.S. tax number. This opened up access to the platform for sellers based outside the US.
In the July 2021 news, it was reported that starting July 1, 2021, the marketplace will charge and automatically transfer Sales Tax on orders shipped to 45 states and 2 territories (DC and PR).
You can get more information on this at this link >> (if you have a Walmart account), and this document shows how to set up Sales Tax collection, for states that the marketplace does not yet work with.
The Etsy platform was one of the first to set up Sales Tax collection, and today it does so for virtually every state (except Missouri).
Etsy calculates the state sales tax rate for the shipping address, charges it to the buyer, and remits the tax due to the state. For orders placed through PayPal, Etsy includes the collected sales tax as part of the payment sent to the seller. Etsy then adds the amount of sales tax to the Etsy charge, and thus collects the tax.
In addition, the marketplace claims to have resolved the issue of taxes, which had to be collected before the various state arrangements went into effect. So it is not worth worrying about “tax debts” in the case of Etsy. Although the platform admits that it is still working on improving its Sales Tax collection algorithms.
It should be noted that Etsy handles more than 50 million handmade goods and it is a challenge to classify them into tax categories. Here is another touch to the U.S. tax system: In Pennsylvania, the sale of yarn is taxed unless the yarn is used to make articles of clothing. Moreover, in Washington, there is no tax on candy, except for that which is to be frozen.
Therefore, we can conclude that marketplaces have done a pretty good job of making life easier for their sellers in terms of collecting Sales Tax. At the moment, only a few states can present a temporary problem if you have a product there or if you exceed the sales limits.
In the final part of our Sales Tax series, we will talk about cases where Sales Tax will need to be collected on your own: Shopify stores and proprietary sites through which sales are made in the United States.