Sales on Amazon seem easy at first. But once orders start coming in, sales tax quickly creates confusion. Every state has different rules, and Amazon sellers must determine which ones apply. The real question is, does Amazon collect sales tax for sellers, or must sellers manage it alone?
The short answer is yes. Amazon collects and remits sales tax in most states with marketplace laws. However, not every state applies the same approach. Sellers must still stay alert about responsibilities in specific cases.
This Amazon sales tax guide covers key rules across states. It also explains what sellers must do to stay compliant. You’ll learn how Amazon handles sales tax and what steps sellers need to take next.
What Is Sales Tax and Why Does It Matter for Online Sellers?
Sales tax rules can feel confusing once you realize they vary from one state to another. Sellers often assume the same tax applies everywhere, but that’s not how the system works in the U.S.
A small tax gets added to a customer’s total during checkout. Sellers collect that amount and send it to the state. The money goes toward roads, schools, and public services, not into the seller’s income.
Every state decides who needs to collect taxes and under what conditions. These rules usually depend on where the buyer lives. Online sellers often miss this detail and end up violating state compliance laws without even realizing it.
In 2018, the Supreme Court ruled in the Wayfair case that states can tax online sales. This changed everything. Sellers no longer need a physical store in a state to be responsible for collecting tax there.
If you sell online, you must know where sales tax applies and when to collect it. These rules protect your business from penalties and help avoid legal trouble. Customers also trust sellers who follow tax laws and stay compliant.
Understanding Nexus and Marketplace Laws
Nexus means a business has a connection to a state that requires sales tax collection. This connection creates a legal duty for the seller to collect and send tax.
There are two types:
- Physical nexus
- Economic nexus
Physical nexus happens when a business has a warehouse, office, or employees inside a state. For example, storing products in a fulfillment center creates a physical nexus instantly.
Economic nexus happens when your online sales in a state reach a certain threshold. Some states set this at 200 orders or $100,000 in revenue. These laws apply even without a warehouse or office there.
Marketplace Facilitator Laws and Their Impact
Marketplace facilitator laws were created to help states collect more sales tax from online orders. These laws shift the duty of collecting and sending taxes from individual sellers to platforms like Amazon.
Amazon now collects and remits sales tax in most states where these laws apply. This change reduced the burden for many sellers. States benefit too, since they receive tax revenue more consistently from one source.
However, sellers should not assume Amazon handles everything. Some states still expect sellers to register, file reports, or collect tax on sales outside Amazon. If you sell on multiple platforms, your responsibilities may increase depending on state laws.
Does Amazon Collect Sales Tax for Sellers?
Sales tax rules might seem less stressful once you know who handles what behind the scenes. This is where Amazon’s role becomes clear for most sellers. Marketplace laws have changed how sales tax works for sellers using large platforms.
Many sellers wonder if they are responsible for collecting tax or if Amazon handles it instead.
So, of course, Amazon does collect sales tax for sellers, but only in states with marketplace facilitator laws.
Many states in the U.S. have passed marketplace facilitator laws that apply to platforms like Amazon. In those states, Amazon takes full responsibility for collecting and sending the tax to the proper government agency.
- Amazon acts as the marketplace facilitator and follows each state’s rules for sales tax collection.
- The tax amount is sent straight to the state, so sellers never handle or keep those funds.
- This system helps sellers avoid compliance mistakes and reduces their direct tax responsibilities in many states.
- Not all states follow the same rules. Some still require registration, reporting, or action from the seller’s side.
For sellers operating only on Amazon, this setup provides a big relief. It removes the pressure of tracking tax thresholds, understanding state laws, or managing complex remittance tasks. However, sellers who use multiple platforms still need to check what applies to them in each location.
Where Amazon Collects Sales Tax?
Amazon collects sales tax for sellers in most states, but the details depend on where each buyer lives. While many states follow marketplace facilitator laws, others apply special local rules that sellers must understand clearly.
Amazon collects and remits sales tax in nearly every U.S. state with marketplace facilitator laws. This includes places like California, Florida, Texas, Illinois, New York, Washington, and North Carolina. Sellers in those states do not collect or send tax themselves. Amazon manages that part of the transaction directly.
Some states have added complexity because of local-level filing rules or home-rule cities. In Colorado, sellers may need to register with certain cities, even though Amazon collects at the state level.
Louisiana requires sellers to register with the Louisiana Sales and Use Tax Commission for remote and local filings.
Alabama uses a special system called the Simplified Sellers Use Tax, which requires separate attention from sellers.
Alaska has no state-level tax, but many cities charge their own. Amazon collects only in cities that joined the local agreement.
States with no sales tax include Delaware, Montana, Oregon, and New Hampshire. Amazon does not collect anything in those states, since there are no tax laws to enforce on retail sales.
Sellers should check each state’s tax website for exemptions, local city rules, and updated filing instructions. This helps your business stay compliant, even when Amazon handles most of the sales tax process.
When Sellers Still Have Sales Tax Responsibilities
Even though Amazon collects and remits sales tax in most states, sellers still have responsibilities in several situations. These actions depend on your sales channels, your business location, and the states you operate in.
Get a Sales Tax Permit
Some states expect sellers to register for a permit, even if Amazon already collects tax on each order. A permit gives your business the legal right to collect and report sales tax when needed. If you run a store on another platform, registration is often required in multiple states.
Always check if your business has a physical or economic nexus before skipping permit registration in any state.
File Even with No Sales
Once you’re registered, states may require monthly, quarterly, or annual filings, even if you had no sales. These are called “zero returns.” Skipping them could lead to late fees, interest charges, or cancellation of your tax permit.
Keep a reminder for each due date, and never assume silence from a state means you’re clear.
Track Off-Amazon Sales
Amazon only handles sales tax on its own platform. You are responsible for sales made through Shopify, WooCommerce, Etsy, or wholesale. These sales often trigger separate filing requirements depending on state thresholds and rules.
Use tax tracking software or a trusted accountant to stay compliant across all selling platforms you use.
Amazon FBA and Nexus Risks
Sellers who use Amazon FBA must stay alert, because storage locations can quietly create tax obligations. That’s where understanding inventory and nexus becomes critical.
FBA Inventory Creates Physical Nexus
Any time your inventory is stored in an Amazon warehouse, that state may trigger physical nexus for your business. This means you might be legally required to register, collect tax, and file returns. Amazon may still collect on your behalf, but some states expect additional seller action.
FBA inventory may be placed in states like California, Texas, Arizona, Florida, or Pennsylvania, depending on Amazon’s fulfillment strategy. Sellers often don’t know where products will go, which makes tracking exposure harder.
You can review your inventory locations using the Amazon Inventory Event Detail Report in Seller Central.
FBA vs. FBM: Who Faces More Tax Risk?
FBA sellers face more tax exposure than FBM sellers because inventory moves across state lines without notice. That storage alone creates a nexus in multiple states.
FBM sellers ship directly from their own address. This limits their physical nexus to one state unless they meet economic thresholds elsewhere.
How to Set Up Sales Tax in Amazon Seller Central?
Once you understand how tax rules apply, the next step is setting up your account correctly inside Seller Central. Amazon makes it easier than most platforms, but each part must be done carefully to stay compliant.
- Start from the Seller Central dashboard. Click Settings, then select Tax Settings from the dropdown menu. Choose the states where you’re registered to collect tax and confirm your business location. Always double-check that your selected states match your permits and nexus conditions.
- Each product you sell needs a tax code. This tells Amazon how to apply the right tax rate. Assign tax codes during listing setup or by editing existing products. Some states tax categories like groceries, clothing, or supplements differently. Use Amazon’s product tax code list to find the closest match for each item.
- Not every state treats shipping and gift wrap the same. Go to your Tax Settings and configure how these charges are taxed. You can match the item’s tax rate or treat them separately. Follow your registered states’ guidelines to avoid problems with incorrect collection.
- Go to the Reports section and select the Tax Document Library. Download your Marketplace Tax Collection Report regularly. You’ll also find transaction-level reports to support a detailed review. Keep copies for your records and use them during filings or when sharing data with your accountant.
Products that Have Different Tax Rules
Product categories are taxed differently, and sellers must understand those differences to stay fully compliant. It’s just as important as knowing where Amazon collects sales tax, since certain items follow exemptions or thresholds.
| Category | Common Rule |
|---|---|
|
Clothing |
Exempt or reduced in some states under price limits
|
|
Groceries |
Often exempt, but prepared food may still be taxed
|
|
Digital Products and Software
|
Taxed in many states, exemptions vary widely
|
|
Supplements and Medical Devices
|
Frequently taxable, some healthcare items are exempt
|
Clothing is one of the most confusing categories. Many states exempt basic clothing up to a certain price. For example, New York exempts items under $110, while higher-value clothing is still taxed. Sellers must apply the correct product tax code to avoid errors.
Grocery rules are usually simpler, but there are exceptions. Most staple foods are exempt from sales tax, yet prepared meals, candy, or soda are often taxable. These differences matter when assigning tax codes inside Seller Central.
Digital products and software are treated differently from state to state. Some states tax downloads and streaming subscriptions, while others exempt them completely. Sellers should confirm which states consider digital goods taxable before assigning codes.
Supplements, vitamins, and medical devices often fall into special categories. States usually treat them as taxable, but prescription items and certain medical equipment may be exempt. Careful classification is essential when listing these products.
Filing and Reporting Sales Tax as a Seller
You’ve seen how products follow different tax rules, but filing responsibilities still remain for many sellers. Even when Amazon collects sales tax, that doesn’t always mean your job is finished. Some states still require your involvement.
Some states ask sellers to file what’s called a zero return. This happens even when Amazon collects and remits tax. A zero return means you report zero dollars collected, but still file the form on time. States like Connecticut and Pennsylvania often require this step. Failure to submit can lead to fines or permit issues.
Sellers with multiple channels must handle filings differently. If you use platforms like Shopify, Etsy, or WooCommerce, your Amazon reports aren’t enough. You must also report the tax collected from non-Amazon sales. That means calculating totals across channels and filing them within each state’s system.
Other states want sellers to list Amazon’s tax collections for informational purposes. They won’t expect you to pay again, but you still need to declare that Amazon handled the tax. These marketplace filing rules change by state, and some portals ask for specific supporting details.
Each state follows its own filing calendar. For example, Texas asks for monthly reports. Illinois often sets quarterly deadlines. Follow the schedule assigned during registration. If tracking everything becomes difficult, you can use software or work with a tax professional to stay accurate.
Refunds, Returns, and Adjustments
Once you file correctly, the next challenge comes when customers request refunds or return items. These situations often raise tax questions for sellers.
#Problem 1: Sellers wonder if they need to return the sales tax when issuing a refund.
Clarification: Amazon handles that part. When a refund is processed, it adjusts the sales tax automatically. You don’t need to send anything extra to the state.
Tip: Check the refund report in Seller Central to confirm the full breakdown of the refund and tax amounts.
#Problem 2: Refund adjustments vary by state and confuse sellers who track reports manually.
Clarification: Some states expect refund-related tax adjustments to appear in filings. Others handle it fully through Amazon.
Tip: Review your Marketplace Tax Collection report regularly to catch any updates that affect monthly or quarterly filings.
#Problem 3: Poor record-keeping leads to mismatched totals during reporting.
Clarification: Amazon does not always flag adjustments clearly in bulk exports. Small errors can grow over time.
Tip: Keep a folder for refund-related reports and match them to your return periods before filing anything.
Exempt Buyers and Amazon Business
Some Amazon buyers do not pay sales tax because they purchase for resale or qualified business use. These buyers must provide a valid exemption or resale certificate that proves they meet their state’s tax-exempt rules.
Amazon Business handles most of this process. Buyers upload their documents when placing an order. After approval, Amazon removes sales tax from future purchases made through its account using that exemption.
Sellers must still stay alert. You need to keep copies of each exemption record tied to your Amazon orders. Some states require sellers to show proof during audits, especially after repeated tax-exempt transactions.
Missing documents could lead to fines, canceled permits, or unwanted audit delays. If you sell on other platforms or wholesale, you must track those exemption records on your own.
Organized paperwork protects your business and keeps you compliant with each state’s sales tax laws. Amazon makes this easier, but storing proper records is your responsibility. Always double-check exemption details before sending out any tax-free order.
International Sales Tax Basics
International sales add extra layers of tax rules that work differently from the U.S. system. Let’s look at how the EU, UK, and Canada handle taxes, and how VAT compares to U.S. sales tax.
EU and UK VAT Rules
In the EU and UK, Value Added Tax (VAT) applies at each sale stage. Amazon VAT Services can register your business and collect VAT on your behalf through IOSS (Imported One‑Stop Shop). Sellers must report and pay VAT even when buyers use IOSS across EU countries.
Canada GST/HST Basics
Canada uses GST in some provinces and a combined GST/HST system in others. U.S. sellers must register once Canadian sales pass CAD 30,000 in any 12-month period. Each province has its own rules, so tracking them carefully helps avoid tax errors.
As your business reaches buyers in other countries, tax rules can get confusing very quickly. Some sellers think VAT works like U.S. sales tax. That’s not true. These systems follow different rules that affect how much you collect and report.
| Feature | VAT (Value Added Tax) | U.S. Sales Tax |
|---|---|---|
|
When Tax Is Charged
|
At every step in the supply chain
|
Only at the final point of sale
|
|
Who Collects It
|
Each business in the chain collects VAT
|
Only the retailer collects sales tax
|
|
Price Visibility
|
Usually included in the price shown to buyers
|
Added at checkout, not included in listed price
|
|
Government System
|
Common in the EU, UK, and other global markets
|
Used only in the United States
|
|
Filing Requirements
|
Frequent, with strict reporting at each stage
|
Depends on state, mostly seller-focused
|
|
Scope of Tax
|
Broad, covers full supply chain
|
Narrow, applies only to retail transactions
|
Tools and Resources for Easy Compliance
Sellers trying to stay on top of tax compliance often feel buried in paperwork and shifting rules. The good news is that several tools now make it easier to stay accurate, organized, and on time without extra stress.
- Avalara: Handles sales tax calculation and filing. Great for high-volume sellers. Sync your store to automate reports.
- TaxJar: Works well with Amazon and other marketplaces. Turn on AutoFile to meet return deadlines easily.
- A2X: Connects Amazon to accounting platforms. Cleanly separates sales, taxes, and fees for monthly reconciliation.
- Zamp: Newer tool with strong audit protection features. Use it to track filings across all active states.
- Compliance Calendar Tip: Add reminders for quarterly or monthly return deadlines. Avoid penalties by planning ahead.
- Amazon Reports Tip: Download the Marketplace Tax Collection report. Use it to verify what Amazon has already remitted.
Frequently Asked Questions (FAQs)
Even with a complete guide, some questions still come up during day-to-day selling and filing. Below are five common issues real sellers face when managing sales tax through Amazon and other platforms.
Yes. When Amazon processes a return, it adjusts the sales tax automatically. You don’t need to handle it manually unless the sale happened outside Amazon, like on your website or through a wholesale order.
Yes. If you’re registered in a state, you must file returns as scheduled. Some states require zero-dollar filings even with no sales. Ignoring this could result in penalties, late fees, or permit cancellation.
You may have a nexus if you store inventory, make frequent deliveries, or exceed economic thresholds. Check Amazon’s fulfillment reports and your sales totals by state. Using tax software helps monitor and update your nexus footprint accurately.
Clothing and food are taxed differently by state. Use Amazon’s product tax code library to choose the right code. Applying the wrong code may cause overcharging, tax errors, or compliance issues during filing or audits.
No U.S. sales tax applies to international buyers, but foreign rules may still apply. You may need to collect VAT, GST, or customs tax based on the buyer’s location and marketplace regulations like IOSS or local import laws.
Too Many Rules? Brand’s Bro Keeps You Compliant
Amazon compliance isn’t just about sales tax. You also need the right account setup, codes, and filing process. A small mistake can trigger penalties, freeze your funds, or even lead to account issues.
Brand’s Bro helps Amazon sellers stay fully compliant from the start. We guide your state registrations, set up your tax settings, and monitor FBA inventory for nexus risks. You also get help with PPC and ad compliance, so you run campaigns without breaking rules.
Want accurate reports, clear tax handling, and fewer filing headaches?
