Today, I’m gonna explain to you your sales
tax obligations in the U.S.A. when selling using the Amazon FBA program. And it doesn’t matter whether you are a citizen
or a resident in the U.S.A. or you are an international-based seller, this video will
help you understand your sales tax obligations. I know I’ve already done a video before on
your sales tax obligations, but that was with dropshipping. As an Amazon FBA seller, you have some different
things to keep in mind. In fact, it’s actually a lot easier to meet
your sales tax obligations as an Amazon FBA seller so look at that as a positive. And I know that this topic may not be the
most interesting of topics, but believe it or not, it’s one of the topics that we get
asked the most here at Wholesale Ted. And frankly, it makes me glad that it is,
because in this industry, you are earning a lot of money, real money. This is a real business, which means that
you need to meet your sales tax obligations. And while this might sound a bit scary, trust
me, if you were using a tool called TaxJar, meeting your sales tax obligations is a lot
simpler than you may think. So, let’s jump straight into the video. Question one. When do you have to pay sales tax to a state? The question on whether or not you owe sales
tax in a state actually boils down to another question, which is this one: Do you have tax
nexus in a state? If you have what is called nexus in a state,
then you owe sales tax to that state for every sale that you make to customers that are located
in it. The word nexus is a legal term which refers
to whether or not you have a sufficient physical presence in a state that requires you to have
to pay and collect sales tax within it. If you have nexus in a state, then you need
to collect and pay the sales tax. Of course, if you don’t have nexus in a state,
then that means that you don’t owe them any sales tax. It doesn’t matter whether you just sell $50
worth of items in a state that you have nexus in, you are usually legally obligated to pay
sales tax on those sales. The one exception to this, of course, is states
that don’t have sales tax. This includes Delaware, Montana, Oregon, and
New Hampshire. Alaska is a bit of an outlier. While it does not have a state sales tax,
it allows districts to charge their own sales tax rate. This means that you usually have to pay a
sales tax on sales that you make within Alaska. So we know that you only have to pay sales
tax within the states that you have nexus in. So the question now becomes how do you know
if you have nexus in a state? Question number two. How do I know if I have nexus in a state? Well, one really easy way that you can figure
out if you have nexus or not in a state is if you live in one. So if you live in New York City, then that
means that you have nexus in the state of New York. Another easy way to figure it out is you have
an office in a state. So if you live in New York but you have an
office in Texas, then that means that you have to pay sales tax on sales made within
both New York and Texas. Of course, this means then that if you live
outside of the United States, then you won’t have nexus in that way. Congratulations. But you are not off the hook in the slightest
because here is the sticking point as an Amazon FBA seller. The Amazon FBA program has warehouses in 22
states. And in the majority of those states, simply
having inventory stored in a warehouse within it means that you have nexus in that state. But, of course, there are some exceptions. Amazon have warehouses in Delaware and New
Hampshire. If you have your inventory stored in one of
those warehouses, then you will not have nexus in those states. And another awesome exception to this rule
is the state of Virginia. Their taxation department has ruled that if
the only way that you have physical presence in the state is that you have inventory stored
in a warehouse, then that does not constitute nexus. But what that means then is that if you have
inventory stored in any of the other 19 states that Amazon has warehouses in, then you have
nexus in those states. So to help you understand, let’s say that
you lived in Michigan and you had inventory stored in Amazon warehouses located in Florida
and Texas. You would only need to pay sales tax on sales
made in Michigan, Florida, and Texas. So if a customer was based in Colorado and
they ordered an item from you that was shipped out from one of the Amazon FBA warehouses,
then you don’t need to collect sales tax because of the fact that you don’t have nexus in Colorado. But if a customer from Michigan ordered an
item from you, you would owe sales tax on that order because you have nexus there as
you live in that state. And, of course, if a customer from either
Florida or Texas ordered an item from you, then you would legally be required to collect
and pay sales tax on those orders, as you have nexus in those states because of the
fact that you have inventory stored in Amazon FBA warehouses located in them. Question three. How much sales tax do I pay? How much sales tax you collect and pay greatly
depends upon whether you have nexus in a destination-based state or an origin-based state. If you are in an origin-based state, then
you need to collect and pay the sales tax based upon the region of where your physical
presence is located. This means that your sales tax rate is going
to be fixed for all the sales made within that state. It makes it very easy to collect and keep
track of. But if you have nexus in a destination-based
state, then you need to collect and pay sales tax based upon where the customer is located
within that state. And this gets tricky because, in the United
States, you usually don’t just pay a flat sales tax rate for the state. You also pay an additional district tax and
you also pay an additional special tax that is put on there by a city. For example, New York is a destination-based
state. If your customer was located in New York City,
then you would have to collect an 8.875% tax. This includes the 4% sales tax rate for the
state plus a 4.5% district tax and a 0.375% metropolitan commuter transportation district
surcharge. In total, this, of course, adds up to an 8.875%
tax. But, instead of New York City, if your customer
lived in Buffalo, which is based also in New York state, you would have to collect and
pay an 8.75% sales tax. This includes a 4% sales tax rate for the
state and a 4.75% district tax. It’s only 8.75% because Buffalo does not have
any special tax. So even though you could have customers that
are based in the state of New York, because they live in different cities, you need to
collect and pay different sales tax rates. So obviously, origin-based states will always
be easier to deal with. Question number four. How do I collect sales tax on Amazon? While this may sound terrifying, it isn’t
actually all that scary because of the fact that Amazon will automatically charge and
collect the right sales tax rate for you based on each of the states that you have nexus
in. Step one, figure out which states that you
have nexus in. To do this, you’re gonna need to check out
which states that you have inventory stored in. And you need to keep in mind that Amazon may
have redistributed your products to other warehouses. So just because of the fact that you sent
your inventory originally to Florida, it doesn’t mean that it’s all still there. It could’ve been sent to another state like
Colorado, so you need to check. Step two, register to pay sales tax in each
state that you have nexus in. You can do this painlessly online. This is a legal requirement, even if you aren’t
a U.S.A. citizen. You need to pay sales tax in the states that
you have nexus in. When you do this, you’ll be given a state
registration number which you’re going to need later on in step eight so keep it. Step three, register for a Pro Amazon account
if you don’t already have one. You can only use the Amazon Tax service if
you have a Pro merchant account. And, of course, you should always upgrade
to a Pro merchant account if you are making 40 or more transactions anyway because it
saves you money. Step four, log into your seller account. Step five, click on Settings and then select
Tax Settings. Step six, click View/Edit Your Tax Collection
and Shipping & Handling. And here, you are gonna be able to select
it so that Amazon will collect sales tax for you, but you’re going to need to have to add
in your preferences first. Step seven, choose how to manage your Product
Tax Codes. Product Tax Codes, otherwise known as PTCs,
are codes that Amazon allows you to manually assign to individual items to give it certain
tax settings. Luckily, Amazon has an option called Use Default
Product Tax Code. They will automatically assign a PTC for you. For the vast majority of people, especially
those just getting started out, this absolutely fine and I recommend that you select this
option. Step eight, specify your tax collection obligations. In this option, you need to tell Amazon which
states, counties, districts, and cities that you need to collect sales tax in. If you don’t know what your tax obligations
are for each state that you have nexus in and fair enough, then I suggest you download
TaxJar’s free PDF guide, “Introduction to Sales Tax for Amazon Sellers.” In it, it includes a handy checklist showing
you which option you should select for each state. To download it, simply click on the link I’ve
included in the video description below. And once you’re finished that, you are done. Amazon is now going to automatically collect
and charge sales tax for you. Now, there are two things that you need to
keep in mind with this. One, Amazon will charge you a 2.9% fee on
all of the sales tax that they collect for you. So if they collect $10 in sales tax for you,
they will charge you 0.29. This is well worth it. I strongly recommend that you pay the 2.9%
fee in exchange for the headache that they remove for you. Secondly, Amazon don’t separate the sales
tax money that they collect from the other money that they pay you. So if they owed you, say $200 for the items
that they sold and they’d collected $10 in sales tax, then they would just pay you a
lump sum of $210. This means that you need to constantly stay
on top of it. I recommend that you immediately separate
your sales tax money from the other money so that you don’t accidentally spend it. So, that is how you collect sales tax. Now, the final question, how do you pay it? Question six. How do I pay my sales tax to each of the states
that I have nexus in? Paying your sales tax can actually be pretty
easy. You just fill out your tax return when it’s
due to each individual state and you pay online. Now, unfortunately, for destination-based
states, this can get a bit more challenging because of the fact that in your tax return,
you need to outline how much tax is due for each individual district, and city, and special
tax. And that is where TaxJar comes in. It is a tool that, when connected to your
Amazon account, will automatically create a report for you that will outline how much
tax is due for each county, district, and city. They also have an amazing feature called Auto
File which’ll automatically file and pay your sales tax in over 30 states, completely removing
it from your hands. This is a huge time-saving tool which will
very likely save you a lot of accountant fees and I strongly recommend it. So there you go. That is how you collect and pay your sales
tax as an Amazon FBA seller. I do strongly recommend that if you are making
consistent sales that you seek out the advice of a qualified accountant and that you never
use this video in place of a qualified accountant’s advice. I will, however, endeavor to answer as many
comments and questions as I can. So if you have any questions, be sure to leave
them in the comment section below. Thanks for watching this video. If you liked it, I’d appreciate it if you
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$10,000 a Month Online With Dropshipping.” You’ll find a link on how to download this
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