Congratulations! You’ve got a sales tax certificate. Depending on your state and how you were set up, you will owe sales tax either quarterly or monthly. Most states have an “EZ” type form that small fry sellers (like me) can fill in. If you use this form, be aware that you may be paying a little bit more than you owe. The longer form allows you to break out what you owe on a county-by-county basis. In Texas this matters since different counties and cities have different rates. In my case, I use the short form because it is worth it not to have to do the math and fill out the longer form. I overpay, but I can fill out my form in 5 minutes and pay online in another 5 – well worth it.
That being said, the crucial question is – how do you know how much you owe? Amazon has a report for that. From inside your Seller Central (http://sellercentral.amazon.com), click on the “Reports” tab and then “Amazon Fulfillment Reports.”
Underneath “Sales” you will see “Customer Taxes.” Click on that. The report defaults to the previous day’s report. There is a drop-down menu under “Event date” that allows you to choose your custom dates. Click on “Generate Report.” At that point, Amazon will bring the report up on your screen.
You can use the numbers to fill in your sales tax form. I also download the file and save it with a scanned PDF of the sales tax report so I have a handy record for the state if needed. Because each state is different in its reports and calculations, I can’t get in to specifics here. I will say that the assumption made by the state is that you are writing off your original cost of goods sold on your taxes as an expense. For that reason, they charge you taxes for the full price of the item sold.
You’ll notice that Amazon captures the cost of shipping as a source of income as well. You only need to declare this if you are, in fact, making money off of the shipping. Since Amazon does the shipping for its FBA sellers, this is neither a cost* nor a source of revenue for FBA’ers. If you are selling FBA, you can ignore the shipping revenue. I sort my report in Excel and remove the shipping income to make it easier to do the math. Obviously, if you are merchant-fulfilled for some of your items, you’re going to need to do more math.
In Texas, the highest tax rate is 8.25% and is standard in most of the state so I use that number for my EZ form. Texas allows me to pay online rather than by check and even gives me a small discount if I pay at least one day in advance – which I do. Over the busy 4th Quarter 2011 where I sold hundreds of items and made thousands of dollars, I paid the state of Texas just over $129 – well worth the hassle of calculating tax forms.
[*you can, of course, write off the cost of sending boxes to Amazon. I am talking here about the shipping that is charged to a customer/end buyer. Any amount charged to a customer that is greater than the actual cost of shipping is considered income to the vendor and is taxable.]
What if I don’t have a sales tax certificate, do I still owe sales tax on my sales?
I suggest you call your State Comptroller’s office for a definite answer and write down the date, who you talked to, their employee #, etc. I spoke three separate times with different state comptroller employees in Texas and the answer I got was that if I paid taxes at the time of purchase instead of using my sales tax certificate, I did not owe taxes later at the time of sale. My CPA was shocked and had to double-check me. In the past, it was required that taxes be paid on the difference between the purchase price and the sales price. It may be because I was an online seller. It may be because Texas realized how impossible it would be to enforce and monitor with internet sales. I don’t know. You’ll want to check for yourself. Each state has their own rules.
What is sales and use tax?
Again, you will have to call your state comptroller’s office to get the official answer on this. When I spoke to my representatives, they told me I was not required to pay use tax. Again, I was told this is because I’m selling over the Internet. Use tax is basically tax you pay to Texas for goods you sell in other states.
I will say that there was a bit of a wink-wink, nudge-nudge to the answers I got which is why I asked multiple times (plus my CPA didn’t believe me).
What about Amazon collecting and paying my sales tax?
That new service starts this month and I don’t know yet how it all works. Stay tuned. I’m signed up for it.
How is sales tax different from franchise tax?
Sales tax is tax paid on goods sold in your state. Franchise tax is what you pay the state for the privilege of being in business. I only pay sales tax on products sold through my Amazon business. My PR business and book publishing business pay franchise tax. Sales tax is paid either at the point of purchase – like when you buy something for yourself – or at the point of sale – when you sell to someone else. Franchise tax is paid after all expenses are considered including salaries, cost-of-goods-sold, professional services (my CPA, my attorney) and more. Both are reported quarterly which can make it confusing.
Don’t make my mistake!
Be sure to file your sales tax reports on time even if you had zero qualifying sales. You’ll lose your certificate and right to use it very quickly! I didn’t start using my certificate right away and it took awhile before I had sales of tax-free items to Texans so I didn’t file for two quarters. Suddenly, I was buried under the frowny notices they sent me. Luckily, I was able to fix things up by filing my zero balance quarterly reports and getting reinstated…but what a hassle! Save yourself!
I’m not a CPA so please, please read through all those boring forms they give you when you get your sales tax certificate. Ask questions and get to know your state’s rules and quirks. Also, I’m incorporated. That doesn’t impact my requirement to pay sales tax, but it does impact how I run my business, expenses I write off, etc. Corporations may be people too (thank you Mitt Romney for that laugh) – but not really.