How Amazon collects sales tax for sellers
by September 1, 2023
Please note: This blog was originally published in 2019. It’s since been updated for accuracy and comprehensiveness.
The scenario: you’re an FBA seller with a business who has registered for a sales tax permit in the state of Washington. You know you have inventory in at least one of the Amazon fulfillment centers there, meaning you have sales tax nexus in Washington, and would therefore need to collect sales tax in order to comply with the state’s sales tax rules.
One day, a customer in Washington orders an item from your store. However, the warehouse in Washington doesn’t have it, and it ships in from a fulfillment center in California. You’re pretty sure that Amazon won’t collect sales tax from that order…but the more you think about about it the more confusing it gets. Will sales tax be collected or not?
We receive this question a lot, so we thought we would take a second to clear things up.
Registered in the state
The confusion seems to lie in where the item ships from, but really what you need to worry about is where the item ships to.
Once you’ve told Amazon that your business is set to collect sales tax in Washington, they will collect sales tax on any applicable purchases from Washington buyers from that moment forward. That includes every order shipped into Washington no matter which fulfillment center it originates from. In other words, Amazon will assume you have sales tax nexus whenever you have told them you want to collect sales tax from buyers in a certain state.
And Amazon is right. Once you have established sales tax nexus in a state, either by having a business location there or by operating through FBA and storing goods in Amazon fulfillment centers (or for another reason), you have sales tax nexus and must charge sales tax on all purchases to buyers in that state, no matter where the actual item ships from.
When does nexus end?
So if you no longer have inventory stored in a state, do you still have nexus there? The short answer is yes.
The slightly longer answer is that once you have established nexus in a state, you officially have nexus until you notify the state that you are no longer doing business there. In the case of Amazon FBA sellers, even if you find yourself without any inventory in a state for awhile, if you end your nexus relationship with that state, you’ll have to file for a new sales tax permit should you once again end up with inventory in a fulfillment center in that state.
Here’s more info on how to cancel a sales tax permit.
Takeaways
Once you have sales tax nexus in a state, you are required to collect sales tax from all buyers in that state. It doesn’t matter if the shipment originates from an FBA warehouse (or even your own warehouse) in another state. If you make a sale and ship a product to a buyer in one of your nexus states, then you are required to collect sales tax from that buyer.
If you’re already collecting sales tax and looking to save time on your sales tax filings, start a 30-day free trial of TaxJar
Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a tax advisor.
