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Sales tax compliance in 2022: Changes you need to know
At TaxJar, we’re commonly asked two questions when Amazon.com begins collecting sales tax in a new state:
- “I just read that Amazon.com is now collecting sales tax in my state. I sell on Amazon FBA/Merchant Fulfilled. Does this mean I no longer have to collect sales tax from my buyers?”
- “I just read that Amazon is now collecting sales tax in a new state. Does that mean I, as an FBA/MF seller, also have to collect sales tax from my buyers in that state?”
The short and sweet answer to both questions is: No. Amazon.com collecting sales tax from their buyers does not affect 3rd party sellers. You should continue to collect sales tax in any state where you have sales tax nexus.
But sometimes the short and sweet answer isn’t very satisfactory, so let’s dig in and find out why this is.
The Difference Between Amazon.com and Amazon FBA
Amazon.com and Sales Tax
Way back before FBA was even a twinkle in some enterprising Amazonian’s eye, Amazon was “the everything store.” In other words, Amazon.com directly sells a lot of stuff. And this huge amount of SKUs sold by Amazon.com doesn’t even include all of the other products sold by 3rd party sellers.
In the U.S., retailers only need to collect sales tax in states where they have sales tax nexus. Sales tax nexus is a fancy way of saying “significant presence” in a state. A significant presence can include anything from a location to employees to an affiliate in that state. So if you’re Amazon.com and you have a warehouse or employees located in a state, then you are required to collect sales tax from buyers in that state. But if you don’t have any presence (nexus) in a state then you aren’t required to collect sales tax in those states.
Due to the current political climate, Amazon also collects sales tax in a few states where they may not have what we think of as traditional nexus. More on that below..
Amazon 3rd Party Sellers and Sales Tax
However, all of the above only applies to sales directly to buyers from Amazon.com. If you are a 3rd party seller using the Amazon platform to make sales, the rules are different from you.
When you sign up as a 3rd party seller on Amazon’s platform, they are very careful to tell you that you are responsible for collecting and remitting all sales tax from your buyers. Amazon provides a sales tax collection service to Pro Sellers (for a fee of 2.9% per transaction) but they make it clear that they are not responsible for you setting up your sales tax settings, registering with your state, and reporting and filing sales tax.
Just like Amazon.com, you also have sales tax nexus in states where your business has a significant presence. In this case, that presence is in the state where you live. And if you sell on FBA, you’ll likely also have sales tax nexus in the states where Amazon stores your inventory. (Read more about selling on Amazon FBA and sales tax nexus here.)
Long story short, when Amazon.com announces that they will begin collecting sales tax in a new state, this does not affect how, when or why 3rd party sellers collect sales tax from their buyers on the Amazon platform.
Amazon, Sales Tax, and Politics
If that answer was enough and you don’t want to dive deep into the politics of sales tax, feel free to skip this section. But if you’re a big sales tax nerd (and you’re in good company with us here at TaxJar), keep reading.
There have been instances in the past where Amazon has both collected sales tax in states where they do not have what is traditionally thought of as nexus, and where they have not collected sales tax in states where they definitely have nexus.
When Amazon Doesn’t Collect Sales Tax in a Nexus State
Amazon is a huge employer and when they decide to bring jobs to a state they can exercise a lot of clout. In South Carolina, for example, the state legislature decided back in 2011 to give Amazon a break on collecting sales tax in exchange for creating jobs.
For a few years there, Amazon was not collecting sales tax in South Carolina even though their Spartanburg fulfillment center clearly gave them sales tax nexus in the state. This tax break expired after a few years however, and Amazon.com started collecting sales tax from their South Carolina buyers on January 1, 2016.
When Amazon Collects Sales Tax in a Non-Nexus State
Last year, South Dakota passed an aggressive “economic nexus” law to try and compel online retailers with no other presence in the state to collect sales tax from buyers in the state. Senate Bill 106, which is of dubious constitutionality, states that any retailer who grossed more than $100,000 in sales of tangible personal property in South Dakota, or who made sales in over 200 transactions to the state, has nexus.
While the legality of this bill is still tied up in court, the state’s aggressive stance coupled with the tides turning in favor of stronger sales tax laws meant that Amazon decided to go ahead and start collecting sales tax in South Dakota starting on February 1, 2017. This is even though Amazon reportedly does not have any other significant presence (an office, employee, warehouse, etc.) in the state. You can read more about South Dakota’s sales tax law and what it means for online sellers here.
Amazon.com collects sales tax from its buyers in 39 U.S. states and Washington D.C. But if you’re a 3rd party seller on Amazon, where you collect sales tax and where Amazon.com is required to collect sales tax are two totally separate things. As a 3rd party Amazon seller, you can find out more about collecting and filing sales tax on Amazon in our Amazon Sales Tax Guide.
Have questions or something to say? Start the conversation in the comments!