Sales tax on Amazon.com has always been a hot-button issue for Amazon Marketplace Sellers. While no decisions have yet been made, there may be upcoming changes that would affect how online businesses are required to collect sales tax.
Recently, South Dakota has made a case with the U.S. Supreme Court to revisit a court decision made in 1992, Quill v. North Dakota, which says that sales tax does not need to be collected unless the business has a physical presence in that state.
If the court rules in favor of South Dakota, this gives states the ability to tax out-of-state online sellers, which is unwelcome news if you’re a third-party seller on Amazon.
What Does This Mean for My Business?
It means that even if you don’t have a physical presence in a state, you could still be required to collect sales tax for that state for your online sales.
Businesses of all sizes would be required to comply with 1,000 different tax structures, and customers would be adversely affected by needing to pay more for purchases.
Why is This an Issue?
South Dakota has made this case because they have no state income tax, so they rely on retail sales and use taxes for revenue. State and local governments have claimed that billions of dollars of revenue have been lost because out-of-state sellers have not been required to collect sales tax.
Several large companies are stepping up to oppose the ruling change including Wayfair, Overstock.com, and Newegg. Currently, they do not collect sales tax in all states. Amazon.com isn’t involved in the court case, but it will affect how Amazon and third-party sellers collect sales tax.
Amazon currently collects sales tax in the states that require it, but so far Amazon has allowed sellers to choose if they collect sales tax. Most of them don’t. Usually, if sellers have opted to collect the tax, they only choose to do so in states where they have a physical presence, though several bills have been considered in the past that would change this. Some states have passed bills to bring the sales tax conversation back to the U.S. Supreme Court.
The Supreme Court will probably hear arguments with a ruling in April. Until then, sellers can continue to collect sales tax as they currently do.
How Does Sales Tax on Amazon Work?
Amazon is not obligated to determine if taxes apply, and they put the responsibility of sales tax collection, remittance, and reporting on sellers.
Amazon automatically collects tax for orders shipped to customers in states that have enacted Marketplace Facilitator or similar laws. For Amazon, it means that they are now required to automatically collect sales tax in the state of Washington as of January 1, 2018.
For taxes that are not collected automatically by Amazon, you can use their Tax Collection Service.
Amazon charges 2.9% of all sales and use taxes and other transaction-based charges calculated by Amazon. This service requires you to provide tax codes in all the states in which you need to collect sales tax, which you can obtain from your tax advisor or tax authority.
What Can I Do?
You can enable taxes under the Settings section of your account and provide the state tax codes.
Amazon does provide reporting of the sales tax in the Payments section of your seller account, so businesses will need to be diligent about regularly downloading and filing the appropriate reports.
While Tana Sales & Marketing and Amazon can’t provide legal advice on taxes for your business, Amazon has made a resource available for you to locate external tax advisors. What Tana can do for you is walk you through tax setup and ensure you have the right reporting for your business whether it’s taxes, revenue, or growth opportunities.