If you sell products online, you need to ensure that you comply with the growing network of online sales tax laws in the United States. In the past, if you sold products online, consumers would walk away without paying sales tax, and sellers would avoid taxation and remittances. The situation is different now. No one is more affected than Amazon.com (AMZN). It is the world’s largest online retailer and the main place to buy goods while avoiding local government sales taxes.
Technically speaking, Amazon does not levy sales tax because only the government can levy the tax. What Amazon can do is to establish processes and systems through which taxes are applied to online transactions. Since there is no federal sales tax in the United States, this means that Amazon must comply with countless different state tax jurisdictions.
- Tax refund is the process of sending collected taxes to the government, and it is also one of the most challenging aspects of doing business online.
- Amazon is the world’s largest online retailer and must comply with state tax laws in many different jurisdictions.
- Third-party sellers on Amazon are responsible for paying state taxes in states where they have a significant presence or “contact”.
- Third-party software can help ensure that all state taxes are paid on time and in full.
How to calculate and evaluate Amazon sales tax
Laws regarding online sales taxes vary from state to state. For example, in Colorado, Amazon.com purchases must include a 2.9% sales tax. This is much lower than Illinois, which charges a basic rate of 6.25% plus any municipality or city charges, which usually charge an additional 1%. Of course, it is consumers, not Amazon, who pay taxes, but the company must invest time and resources in the collection process.
Regional online sales tax is part of an evolving theme, and the system has undergone significant changes as the state government is catching up with online retail. In 2011, Amazon.com collected sales tax from only five states. In 2013, this number was as high as 23 states. By 2016, 28 states will levy sales taxes on products sold through Amazon.com, including California, Texas, Illinois, and New York. And, as of April 1, 2017, the company collects sales tax from customers in every state (and Washington, DC) that collects state sales tax.
Prior to April 1, 2017, four states banned duty-free shopping on Amazon.com: Hawaii, Idaho, Maine, and New Mexico. The other four states—Delaware, Montana, New Hampshire, and Oregon—do not levy sales taxes. Alaska has a municipal sales tax, but no statewide tax.
Amazon seller sales tax
Amazon is not the only entity that needs to worry about online shopping taxes. Every Amazon seller must also pay sales tax, and any third-party seller who forgets to do so may face serious tax liabilities. This is still a new and unfamiliar responsibility for sellers, and many people have made a mistake or ignored it altogether.
Amazon sellers must be able to determine three variables: the seller’s business presence or tax relationship, who levies the tax and how it is levied, and how the tax remittance process works.
The tax relationship is one of the four aspects of the U.S. sales tax law and depends on the state or region in which the seller conducts business, not the buyer’s location or the way the product moves between them. If the seller has physical stores in multiple jurisdictions, whether it is an office or an in-store retail store, the seller must understand the different tax laws in each jurisdiction.
This can be time-consuming and confusing because tax laws vary greatly across the country. Certain states have enacted legislation, the so-called “Amazon Act”, requiring all online sellers to levy sales tax. These laws even apply to sellers who have no physical presence in the state.
The collection of sales tax can be implemented by the sellers themselves or through Amazon. Amazon can allow sellers to choose to join an automated program, and Amazon provides a fee of 2.9%. The seller is still responsible for collecting and adding a tax number from each of their associations.
Tax refund, or the process of paying taxes to the government, is one of the most challenging aspects of selling goods, especially for small businesses. This is because remittance of taxes is time-consuming and error-prone. Sellers are encouraged to use third-party software solutions to help ensure that taxes are paid on time and in full, and even consult tax advisors to filter legal terms.