Sell on Amazon in California? You’d Better Collect Sales Tax

Millions of people love Amazon.com for many reasons – tons of products, free shipping, and in most cases, no sales tax. If you buy from an Amazon Marketplace seller, there is usually never any tax charged. Amazon Marketplace sellers are the products that you see “New and Used From…”.

amazon marketplace sales tax

 

 

The Laws of California Sales and Use Tax

But if you are an Amazon Seller, the California Board of Equalization may treat the transaction similar to a drop shipment, which it has clear guidance on how sales tax should be collected. In general, drop shipments involve one consumer, two sales, and two businesses:

  • The consumer in California who buys and receives the product
  • The “true retailer” – Amazon, a business located outside the state and not registered to collect California tax, which conducts the transaction that the consumer initiates
  • The “drop shipper” – Amazon Marketplace Seller, the one who sells the true product, and ships that product to the California consumer

When you ship a product directly to California consumers, you are liable for the sales tax on the transaction.

 

Amazon’s Not Helping the Private Sellers

So, what is Amazon’s policy on sales tax on items purchased from Amazon Marketplace:
“Marketplace sellers are responsible for the sales tax on any items sold on Amazon.com, and if necessary, they generally add this cost into the price of their items. Therefore, you will not be charged any additional sales tax for Marketplace purchases. If you have further questions about a particular Marketplace seller’s tax practices, feel free to contact the seller directly.”

With states such as California really struggling to collect revenues, they are looking at internet sales more and more. If you are an internet seller, and use Amazon, you had better make sure that you are setting aside the proper sales tax liability. Even though you do not collect on top of the purchase price on Amazon, you need to ensure that you are calculating the proper tax. You do not want to get audited and discover that you owe sales tax to the State.

 

Does anyone else have any important tax tips for online sellers?

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  • http://www.moneycone.com MoneyCone

    Even though Amazon is exempt from collecting taxes, the onus is on the purchaser to declare and pay taxes (called use tax).

    Only a matter of time online sales are treated as regular sales. I’m guessing not many are declaring their online purchases!

    • http://thecollegeinvestor.com Robert

      Nobody is declaring their online purchases, and that is very, very hard for states to enforce. As such, it is easier for states to go after the merchants who sell the goods, especially if they already are filing income taxes.

  • http://hackingthebank.com/ Will @ HackingTheBank.com

    I think it’s interesting that Amazon’s policy states that it’s the responsibility of sellers, and not the buyers. The California Board of Equalization required me to pay them approx $1.1k in back taxes this past year, which was use tax I owed for purchased I made on Amazon. I don’t mind paying the tax when it’s owed. I’d actually much rather have Amazon collect the tax if I’m going to have to pay it anyways that way it’s transparent during my purchase. However, I hope that the California BoE isn’t getting money from the purchasers like me, as well as going after the marketplace sellers. That would be blatant double taxation on the same transaction.

    • http://thecollegeinvestor.com Robert

      Good call. It’s not a very transparent system, so you never know if they are going after both buyers and merchants.

  • http://bubcap.com Rob

    MoneyCone, the point of this article is that CA businesses are responsible for paying the state sales tax for sales made to CA buyers. So your comments seems to be about Amazon’s general practice of not charging sales tax, rather than about this post. Also, see point two to see what it’s not as simple as you think…

    Will, what gets me is that, if you purchased my product, you wouldn’t knowingly pay sales tax on your purchase, however I would end up paying the sales tax (subtracting it from your purchase), as is the law, and is spelled out by Amazon. HOWEVER, if the CA BOE looked at your receipt, they would think you didn’t pay your sales tax, and tell you to pay it. This means the CA BOE would get twice the tax they deserve on the single transaction. I really blame Amazon for this, for not allowing sellers to charge appropriate sales tax for in-state sales. In contrast, PayPal allows sellers to set-up sales-tax rates for in-state purchases.

    The more I think about this, the more annoyed I am. Wish there was a way to fix the problem!

  • http://hackingthebank.com/ Will @ HackingTheBank.com

    Rob, I wonder if this is something that can be fought. It’s not worth hiring a layer and pursuing it myself, but it would definitely have been nice to not have to pay the $1.1k.

  • alex pouille

    Here’s my question: if I use fulfillment by amazon and physically ship my product to an Amazon distribution center… am I subject to sales taxation? More importantly, do I have nexus in that state for all my other income?

    • http://thecollegeinvestor.com Robert

      Since I’m not a tax professional, I would direct you to one for specifics. However, generally you would need to pay sales tax, but since Amazon is now acting as a distributor, you may not need to. As for nexus, that is unlikely.