Sales tax is sort of like the pipes in your house. It’s easy to forget about until there’s a problem and you end up with a disaster! In the case of sales tax, a disaster means either upsetting customers by charging them the wrong amount of sales tax or paying sales tax out of pocket because you didn’t charge enough. Ouch!
This post will detail the five aspects of your Amazon’s stores sales tax you should double check before going into Q4. Just like maintaining the pipes in your house, taking these preventative steps now will prevent sales tax problems in the future.
1. Check Your Sales Tax Nexus & State Sales Tax Settings
Have you started collecting sales tax in a new state or states? Maybe you have nexus in a new state because Amazon shipped your inventory there. Or perhaps you are hiring a customer service representative in a new state to help you with Q4 volume. Your Q4 business decisions can create sales tax nexus in new states.
If you find that you are on the hook to collect sales tax from buyers in a new state, be sure that you register for a sales tax permit in that state, and set up your Amazon state sales tax settings to collect from buyers in that state.
2. Check Your Product Tax Codes
This is an easy step to skip when you first start selling on Amazon. A lot of sellers wonder why you should bother appending “A_BOOKS_GEN” or “A_CLTH_GEN” to their SKUs. However, failing to properly code your products can lead to unhappy customers.
Product tax codes let Amazon know that your products fall into a category that is taxed differently in different states. As just one example, many states don’t tax grocery items. Others don’t tax textbooks.
Let’s look at an example. Do you sell clothing? In Pennsylvania, all clothing is non-taxable. So, if a customer in Harmony, PA buys a pair of stylish blue jeans from you they will be miffed if they notice you are charging them sales tax. Entering the right product tax code for each of your SKUs will ensure you collect the right amount of sales tax on the right products, every time.
3. Double Check Shipping & Gift Wrapping Taxability
Amazon allows you to choose whether you will charge sales tax on shipping charges and on gift wrapping in each state.
If you set up sales tax on shipping and gift wrapping when you started your Amazon store, you should be all set. However, state sales tax laws sometimes change.
Take Missouri, for example. On August 28, 2017, the state of Missouri changed their tax code to state that shipping charges are no longer considered taxable. If you are currently following the old state rules and charging sales tax on shipping charges you should be sure to change your Amazon tax settings to avoid unhappy Q4 customers.
This video shows you how to update your Amazon FBA sales tax settings, product tax codes, and shipping and gift wrap taxability:
4. Make Sure You’re Collecting Sales Tax on any Other Shopping Carts & Marketplaces
One big pitfall I see sellers fall into is forgetting to set up sales tax collection in all nexus states on all shopping carts and marketplaces.
Let’s say you have sales tax nexus in 5 states due to selling on Amazon FBA. If you set up a Shopify or Etsy store, you should be collecting sales tax in those 5 states, too. If your business has sales tax nexus in a state, you should collect sales tax from all buyers in that state, no matter if you make the sale through Amazon, Shopify, Etsy or another platform.
5. Did you take advantage of the recent Sales Tax Amnesty? Be sure to update your tax settings
Twenty-four states (including 12 states with Amazon fulfillment centers) recently offered a sales tax amnesty specifically to help online marketplace sellers get compliant. One of the incentives to get states to participate was online sellers would begin collecting sales tax by December 1, 2017.
If you took advantage of the amnesty, you’ll receive communication letting you know when to register to collect sales tax. For example, if you start collecting sales tax in a new state on December 1st, be sure you have set up your sales tax collection settings for that state, and chosen your shipping and gift wrapping taxability options. If you forget to set up your sales tax on Amazon (and your other shopping carts and marketplaces) you may be on the hook to pay the sales tax you should have collected out of pocket. Yikes!
I hope this post has helped you take some preventative sales tax measures so you can enjoy and smooth (and very profitable!) Q4. Have sales tax questions? Start the conversation in the comments!
TaxJar is a service that makes sales tax reporting and filing simply for more than 9,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
About the Author
Jennifer Dunn is TaxJar’s Chief of Content. Her passion is making tough sales tax topics simple so you can get back to doing what you do best – running your business! Connect with Jenn on Twitter @TaxJarJenn.