UPDATE - Do Amazon Sellers Need to Worry About Sales Tax?

0:38 How marketplace facilitator law works

So first of all, Amazon as a platform is a marketplace facilitator. And by law they are required to calculate, report and remit sales tax on their own sales, like all the Amazon brands, and on sales on behalf of their sellers.

So every month, let's take California for example, Amazon will file a return to California, and on the return it'll include sales of all the Amazon brands, but it'll also include sales of all of its sellers that have made any sales into California, because California sees Amazon as one retailer. So they want Amazon to report everything on behalf of the sellers.

So instead of processing thousands of different returns from Amazon sellers that sell into California customers, they just process this one huge return from Amazon that includes all of the sales. It makes it easier for sellers and it makes it easier for the state to process as well.

So what does this mean for sellers is you don't have a calculation, collection, reporting, or remittance liability, because Amazon is doing that for all of your sales.

1:50 Scenario one, your home state

There is only two scenarios where I see that you might have a reporting liability.

The first one is to your home state, because you are physically located in your home state. That creates a physical presence for you. So because of that physical presence, you are required to register and have a sales tax permit. Because of that registration and sales tax permit, you will need to file returns.

So with the Amazon sales, since Amazon is taking responsibility for all of the sales, you still need to report the sales, but then you can claim a deduction because all the sales are through the marketplace, and then you don't have any taxable sales. All of your taxable sales will be zero, which means you don't owe any tax at all, because let's say 8% on zero taxable sale is still $0.

So in your home state where you have physical presence, you will need to file a return with the state, but you can take the full amount as a deduction. So your taxable sale and your tax liability will be zero.

So check out this video that I did here on how to file a $0 return with California. It should apply to all the other states as well. And I also have a video here that talks about how to go through the numbers to make sure they're not duplicated. So watch those two videos together to get your filing done.

3:21 Scenario two, FBA warehouse states

The second thing that I hear a lot, that I get asked a lot, is what if I use FBA warehousing? Does that mean that I have a physical presence in the state? So does that mean I have to file in all of those states where my products are stored in?

So what I'm seeing is, and we've talked to all the states, about half of the states say yes. Inventory in a third party warehouse does create physical presence, so you should register and file. And half of the states say no, because you don't really have control over your inventory. You don't decide that I'm going to store my inventory in Salt Lake City or I'm going to store it in Kentucky somewhere. It's all up to Amazon. And since you don't have control over where your inventory goes, half of the states don't consider that as physical presence. And because it's temporary as well, it's not a long-term storage in their state.

4:19

So what I want to tell you is, yes, you can go run your inventory detail report from Amazon to see where your inventory is being stored. But even if you store your inventory, for example, you are a California based company and you sell on Amazon and your inventory is stored in Salt Lake City, let's say you have $10,000 of sales into customers in Salt Lake, your responsibility to remit on those $10,000 is still zero, because everything is still through Amazon and you don't have any responsibility for those $10,000 of sales.

So I guess what I'm saying is it's up to you if you have inventory in a state and you are worried and you want to register with the state, but just know your tax exposure for that state with sales tax is very minimum, it's zero. So for a lot of our clients, we recommend them to not worry about it just because their exposure is so small.

5:24 Pennsylvania and Wisconsin income tax

I do want to caveat and say that Pennsylvania and Wisconsin are actively pursuing FBA dollars on their income tax liability. So that's if you have inventory stored in Pennsylvania or Wisconsin. I would reach out to your income tax accountant to see if you have any exposure for income tax, but you definitely have a very, very minimum $0 exposure for sales tax.

5:51 Recap

Let me know if you have any questions in the comments, but just to summarize, if you are an Amazon seller selling exclusively on Amazon, Amazon is taking care of your sales tax in all the states that have a sales tax, and they're in charge of calculating, collecting from the customers. They don't release the funds to you. They just directly remit it to the various states. So your liability with sales tax through Amazon is zero in all of these states.

And you might need to file a $0 return in your home state, and you may consider to register in a state that your inventory is stored in, if that state has an income tax liability, or if you're okay with the added administrative burden of filing $0 returns in those states. But even in those states, even in the FBA states, your sales tax exposure is still zero.

6:49 Where to get help

So let us know in the comments if you have any further questions or need any further clarification. If you are an ecommerce seller over 2 million in revenue and you need help with your sales tax and ecommerce accounting, please feel free to reach out to us. We'd love to chat with you.

And if you have any other suggestions for topics and things you want us to cover, leave in the comment as well. As usual, please like and subscribe to our channel, and we'll see you in the next video. Bye.