Important changes to Seller Fee Taxability on Amazon.com
Amazon sent a vague email on April 11th announcing they would begin charging sales tax on referral fees and prep fees in certain states. There was no indication of the amount of tax to be collected, in which states, and how it would be remitted. Several days later on April 16th, a follow up email was sent with more details. Below is a quick run down of what to expect and the impact it might have on your Amazon business.
To comply with state tax laws, Amazon.com must begin collecting and remitting sales tax on some of these fees.
The fees included are certain "Selling on Amazon Fees" such as per item, order, and referral fees taxable services. Also included are Fulfillment by Amazon (FBA) inventory prep fees,such as bubble wrap, polybag, taping, and labeling services. Tax for these fees is not being collected in all states and taxability is determined by the location of your business (for Selling on Amazon Fees) and order fulfillment center (for FBA Service Fees). Below is a detailed list of fees and states that will be impacted by this change.
Selling on Amazon Fees - Based on Tax Rates in Your Business Location (Applies in CT, DC, HI, SD, & WV)
- Referral Fee
- Subscription Fee
- Variable Closing Fee
- Per-item Fee
- Promotion & Merchandising Fee
- Refund Commission Fee
- Checkout by Amazon
- Sales Tax Collection Fee
FBA Service Fees - Based on Tax Rates of Order Fulfillment Center (Applies in AZ, CT, IL, WV)
- Labeling Fee
- Polybagging Fee
- Bubble wrap Fee
- Taping Fee
- Opaque Bagging Fee
- Repackaging Fee
These changes only apply to your business if you're located in one of these states or if an FBA order is fulfilled from a fulfillment center located in one of these states. Keep in mind the tax is only being charged on the fee itself not the total sales price of your order so the impact should be minimal for most. Below are two examples.
- If your business is located in West Virginia, and your sales tax rate is 6.39%, and you sell an item with a total price of $20, which is subject to a 15% referral fee, Amazon will collect and remit sales tax of $0.19 (calculated as 6.39% of the referral fee amount of $3.00). If your business is located outside Connecticut, the District of Columbia, Hawaii, South Dakota or West Virginia, there will be no sales tax collected on the fees.
- If you decide to use FBA Prep Service to bubble wrap your products, and the service is performed at a fulfillment center in Arizona, and the sales tax rate at that location is 8.37%, and the bubble wrap fee is $0.80/unit, Amazon will collect and remit sales tax of $0.07 (calculated as 8.37% of the bubble wrap fee amount of $0.80/unit). If the service is performed at a fulfillment center outside Arizona, Connecticut, Illinois or West Virginia, there will be no sales tax collected on the fees.
Although not ideal, this shouldn't come as a surprise with last year's Supreme Court ruling of South Dakota V. Wayfair. States are entitled to their piece of the Amazon gold rush and many are starting to cash in. Marketplace Facilitator Legislation, that shifts the sales tax collection and remittance obligations from a third party seller to the marketplace (Amazon) makes it easy for states implement changes like this.
Unless you want to opt out of FBA Prep Services or relocate your business, there aren't many ways to avoid the taxes on these fees. However, Amazon claims
We expect that the vast majority of fees paid on Amazon.com will be unaffected by these changes in taxability.
Rest assured, our Settlement Report will reflect the new tax being charged on fees. As always, let us know if you have any questions about these changes and happy selling.