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…”.
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?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.