How Is Sales Tax Handled on Amazon and Do You Have to Worry About It?

online or both…and the entire process from properly collecting tax locally and for each state, to keeping track of what was collected and then filing and paying it can be particularly taxing. Amazon makes that process easier for its third-party sellers.

Here’s how it works. It used to be that retail sales tax was only collected from brick and mortar operations. Now retailers, whether they are a brick and mortar or not, are required to collect sales tax when they have a “significant connection” to a state. That significant connection is always your home state and is also considered a physical presence for business and usually storage as well. Plus, you need to pay tax if an affiliate (such as is advertising, shipping or doing other work for your business in exchange for profits.

In order to be required to pay sales tax as a third-party seller on Amazon, your product also has to be considered taxable. In general, this includes products, not services…and certain products, such as groceries, clothing and textbooks may be exempt or taxed at a lower rate.

Here’s where it could get very confusing if you were selling online on your own and not through Amazon. Sellers need to collect sales tax for their products sold for each state and then local taxes which can differ from county to county because they all have their own tax rates. Oh boy! Ah, but that’s not all. As a seller who needs to collect taxes and know how much to charge for each particular area and for each particular type of product, you need to keep track of it all and then report it and pay it. Wow, that’s a lot of hassle to handle, right?

Okay, so here’s where it gets a little easier when you are working with Amazon as a third-party seller. Amazon supports its sellers in several ways when it comes to handling sales tax. First of all, Amazon collects the correct amount of sales tax across the county, albeit state or local or both. 

Then, Amazon tracks that massive amount of collection, riddled with all of its different nuances and continual changes; breaks it all down and it provides its sellers with sales tax reports chronicling all of it. Third-party Amazon sellers only need to log into Seller Central, click Review Sales Tax Report, then click generate report and choose the time period for that particular sales tax report.

At this point, as a third-party seller for Amazon, you just need to make sure that you report how much sales tax you have collected from customers and, of course, file and pay it. There is even assistance at this level. You can use sales tax software to automatically file your sales tax returns and pay what you owe each state.