Amazon Marketplace - Tax Handling

Calculation of Sales Tax

The basic question that comes to mind is how is the sales tax on Amazon calculated?

  • If a product is subjected to sales tax in the state in which it is shipped, the tax is calculated on the total selling price of the item.

  • The total selling price includes shipping of the item and handling charges, gift wrap charges, etc.

  • The tax that the customer needs to pay depends upon the identity of the seller, the type of item sold, and shipment destination.

  • The amount of estimated tax appearing on the order may differ from the tax charged ultimately. This is because the factors can change between the time of placing an order and the time of transaction.

Amazon has teamed up with many sellers. For sales within the United States, Amazon calculates taxes on the seller’s behalf. Information can be viewed in the Seller’s Shipping and Tax information section.

Dealing with Sales Tax

Let’s see how you, as a merchant on Amazon, should deal with Sales Tax −

  • Open the Amazon portal. Go to Settings and click the Continue button.

  • The very first document provides an overview of how Amazon maintains the taxes. The next document shows the product tax codes. Click the Continue button and scroll down. Here you can configure your tax settings.

  • Amazon has a partner Vertex that manages the database of sales tax rate. The seller can choose where to collect the tax, each state in which you have a nexus, also defined as your presence in that State. Amazon uses the data from Vertex to calculate how much sales tax is to be charged.

  • Select the product type that applies to your products. Click on the check boxes next to the States in which tax needs to be collected and then enter your sales tax ID number into the required box. Vertex calculates sales tax for each item, on the rates it has for these areas and the product type. However, the settings may change by entering the rate while checking the custom rate check box.

Amazon charges sales tax on shipping and handling as well as on gift wrap, although not in all the States. Shipping and handling charges are not taxable if they're shown as separate costs on the sales invoice. Check for the State in which your product is being shipped and click ‘Continue’. Amazon will charge the sales taxes you specified and will transfer the amount along with your other earnings. The seller is responsible for paying tax to the Tax Authorities.

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