Amazon Seller Sales Tax Made Easy: Setup & Filing Guide

Not sure how to manage sales tax for your Amazon sales without risking penalties? This guide from Megaficus breaks down Amazon seller sales tax, helping you understand when to collect it, how to set it up in your account, and the easiest way to file, so you can focus on growing your business with confidence.

What Is Amazon Sales Tax And Why Does It Matter?

Amazon sales tax is a consumption tax that you collect from customers at checkout, and because you are responsible for remitting it to state governments, you must ensure that the correct amount is forwarded to the appropriate tax authority. 

In the United States, forty-five states and Washington D.C require sales tax collection, while Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax. Because each state sets its own rates and rules, your obligations depend on where you have nexus.

Properly managing Amazon sales tax matters for sellers because it affects legal compliance, pricing strategy, and customer trust:

• Prevent legal issues: Managing sales tax ensures sellers follow state laws, avoiding fines and audits that could harm their business.
• Set competitive prices: Knowing the exact tax allows sellers to price products accurately, keeping them competitive and appealing to customers.
• Enhance reputation: Handling tax efficiently builds customer trust by showing transparency and professionalism in transactions.

Tax Types Amazon FBA Sellers Must Pay

Amazon FBA sellers need to be aware of various taxes they may owe, depending on their business structure and where they operate:

• Federal Income Tax: Report and pay tax on all profits from your Amazon business, even without a 1099-K. Deduct allowable business expenses from total sales revenue.
• State Income Tax: File and pay in states that impose income tax, including earnings from online sales.
• Self-Employment Tax: Individual sellers or single-member LLCs pay 15.3% on net earnings for Social Security and Medicare (both employer and employee portions).
• Sales Tax: Collect and remit in states where you have nexus. Rates vary by state (0–13%). Amazon may handle this automatically in some states.
• Excise Tax (if applicable): Applies to specific items like alcohol, tobacco, or fuel-related products.
• International Taxes: Selling internationally may require paying VAT, GST, or other local taxes depending on the country.

When Are Amazon Sellers Required To Charge Sales Tax?

If you are an FBA seller, you can collect sales tax in a state only when certain conditions are met:

• The state must have a Nexus.
• Your product must be physical or a third-party product (TPP).
• Your product must generate high sales volume.
• The sales tax for your product may change within that state.
• The tax amount must be significant for your business.

Step-By-Step Guide To Collecting Sales Tax On Amazon

Selling on Amazon allows you to reach customers across the country, but it also means that you may need to collect and pay sales tax in multiple states. To set up sales tax collection in your Amazon Seller account, the seller follows these steps provided by Megaficus.

Step 1. Register For Sales Tax Permits

Before you can start collecting sales tax, you must register for a permit in every state where you have nexus, and you can complete the process by following these steps:

• Prepare business information: Gather your EIN, legal name, address, and the types of products you sell.
• Register online: Visit each state’s Department of Revenue website, locate the Sales & Use Tax or Register a New Business section, and submit the registration.
• Record permit details: After approval, note your sales tax permit number, filing schedule, and due dates.

Step 2. Configure And Verify Your Tax Settings

After obtaining your sales tax permits, go to Seller Central → Settings → Tax Settings to set up and confirm your tax collection details. Assign the correct Product Tax Codes (PTCs) to each product so that items with different tax rates or exemptions are handled properly. Then, enter your sales tax permit number for every state where you have nexus.

Finally, review your tax collection settings to ensure that all information is accurate before you start making sales.

Step 3. Review Sales Tax Reports Regularly

Regularly review your Sales Tax Reports in Reports → Tax Document Library / Sales Tax Reports in Seller Central and then compare the collected amounts with the expected tax based on sales in each state. If you find any discrepancies, correct them immediately to maintain accurate records and ensure compliance.

Step 4. File And Remit Sales Tax Returns On Time

Submit all required tax returns according to the schedule provided with your permit. Sellers can follow these steps to complete filing properly:

• File returns: Submit all forms using the state portals.
• Remit payments: Ensure payments are made for any tax due.
• Adjust filing frequency: Update the schedule if your sales volume increases or circumstances change.

Key Tax Documents And Obligations You Must Know

Before managing your taxes, it is essential for Amazon sellers to understand basic tax knowledge, including how sales tax works, your responsibilities, and the common rules that apply to online businesses.

Amazon 1099-K Tax Form

If your business makes at least $600 in sales per year, Amazon will send you a 1099-K tax form, which contains information about payment card transactions and third-party network transactions, and you use this form when preparing your taxes. 

Although you might not receive the form in some cases, you are still legally required to ensure that your business reports and pays the correct amount of tax.

State and Local Tax Registration

Before reporting sales tax, you may need to obtain a business tax certificate or license in each jurisdiction where you sell, as required by local laws.

Despite the fact that the process can be tedious, completing it ensures that your business operates legally and complies with local tax regulations.

Annual Income Tax Forms for Sellers

Most businesses report income taxes using Schedule C on their personal tax return, while partnerships and S corporations typically use Form 1120 or 1120S, depending on their business structure:

• Form 1040: Individuals file federal income taxes with the IRS using Form 1040. This form reports your gross income for the year and calculates how much income is taxable after applying credits and deductions.
• Schedule C: Attached to Form 1040, Schedule C summarizes your business results and includes tax details that flow through to your personal tax return. Sole proprietorships and many LLCs use this method to report business income.
• Form 1065: Partnerships use Form 1065 to report taxes, and each owner receives a K-2 or K-3 form showing their share of profits for reporting on personal taxes.
• Form 1120 and 1120S: C corporations and LLCs filing as corporations report taxes using Form 1120, while S corporations use Form 1120S. Owners also receive a K-1 form to report their income on their personal tax return.

How To Report And File Taxes As An Amazon Seller

To stay compliant and avoid penalties, Amazon FBA sellers should follow practical steps when filing their taxes, from gathering reports to submitting returns accurately.

Step 1: Download Sales Tax Reports from Amazon

To report accurate sales tax, sellers follow these steps:

• Log in to your Amazon Seller Central account.
• Go to Reports → Tax Document Library.
• Scroll to the Sales Tax Reports section and click Generate tax report for the desired period.
• Select a report type:
  • Sales Tax Calculation Report: To calculate the sales tax you are responsible for remitting.
  • Marketplace Tax Collection Report: Shows taxes Amazon has remitted on your behalf.
  • Combined Sales Tax Report: Shows both your responsibility and Amazon’s remittance.
• Wait until the report status changes from “In progress”, then refresh the page to download the Excel file.

In the Combined Sales Tax Report:

• Check Column X (Total_Tax): The sales tax you must report and remit.
• Check Column Y (Total_Tax_Collected_By_Amazon): The sales tax Amazon remitted on your behalf.
• If Column X shows a non-zero amount, generate a Sales Tax Calculation Report, which breaks down sales tax per state, city, county, and district.

Step 2: Optional Automation

Manually calculating tax from reports can be time-consuming, but using Amazon seller tax software automates the process, links multiple accounts, and generates reports in just minutes

Step 3: File Your Sales Tax Return

Once you have obtained your sales tax report, you can complete your filing by following these steps:

• Log in to the official website of your state tax authority.
• Follow instructions to submit your Sales Tax Return.
• Make payment through the secure online portal.
• Always file Zero Returns if no sales tax was collected during a period; deadlines remain the same.

Step 4: Check for Tax Discounts

Some states offer small rewards or discounts to online sellers who collect and remit sales tax on time. As a result, these incentives are usually applied automatically when the returns are filed correctly.

Common Tax Deductions For Amazon FBA Sellers

Amazon FBA sellers can reduce their taxable income by deducting certain business expenses, and understanding these deductions can help manage tax obligations more effectively. Some common deductible expenses include:

• Home office deduction: You can deduct part of your rent or mortgage interest, utilities, and other home-related expenses if you use a portion of your home exclusively for your business.
• Inventory costs: Money spent to purchase or produce inventory is deductible, so it is important to keep accurate records of purchase invoices, manufacturing costs, and any additional expenses needed to prepare products for sale.
• State and local taxes: Certain taxes paid by your business, such as state income tax or business license fees, may be deductible or qualify for credits, even if they do not directly affect federal income tax.

Common Amazon FBA Tax Mistakes And How to Avoid Them

Even experienced Amazon FBA sellers can make errors when handling taxes, so understanding common mistakes and learning how to avoid them is essential for staying compliant and protecting your business.

Misunderstanding Nexus Rules

Many Amazon FBA sellers make mistakes by not fully understanding nexus rules, which determine where they must collect sales tax. Nexus can be created through a physical presence, such as storing inventory in an Amazon fulfillment center, or through economic nexus, which happens when sales exceed a certain threshold in a state. 

For example, if you store products in a California fulfillment center, you are required to collect California sales tax even if your business is based in Texas.

To avoid this problem, sellers need to track where their inventory is stored and monitor sales in each state so they collect tax wherever nexus exists.

Not Setting Aside Money For Taxes

Another common error is failing to reserve funds for taxes throughout the year, because Amazon FBA income often fluctuates. If sellers don’t save a portion of profits, they might face large tax bills at the end of the year. 

For instance, if you earn $50,000 in profit during a busy month without setting aside money, you could owe 15-30% in combined taxes (self-employment tax plus income tax), resulting in a $7,500 to $15,000 tax bill. To avoid this, sellers should open a separate tax savings account and deposit 25-30% of each month’s earnings to cover estimated taxes.

Incorrectly Reporting Sales Tax

Even with Amazon’s tax tools, errors can occur when product tax codes are assigned incorrectly or reports are not reconciled, which means sellers can end up under-collecting sales tax. 

For example, if you classify a taxable kitchen appliance as non-taxable, Amazon may collect too little tax, leaving you liable for the difference. So, sellers should regularly check sales tax reports against internal records and promptly correct any discrepancies to avoid penalties.

Not Filing Taxes On Time

Late filings are another frequent mistake, because missed deadlines result in penalties and accrued interest. For example, if you miss the deadline to submit your quarterly sales tax return, the IRS will charge penalties and interest on the unpaid amount, which can significantly increase your total tax bill. 

To prevent this, sellers should set calendar reminders or use tax software that alerts them to upcoming deadlines, ensuring timely submission.

FAQs About Amazon Seller Sales Tax