Amazon recently announced that they would begin collecting sales tax on behalf of 3rd party sellers from buyers in the state of Washington. The change will happen starting January 1, 2018 and is a huge departure from Amazon’s historical stance that 3rd party sellers are responsible for collecting and remitting sales tax on all sales.
To hash out what this change means for online sellers, we spoke with the Washington Department of Revenue and four sales tax experts. You can see the entire expert panel discussion here:
And here’s a quick recap of what we covered.
Why is Amazon now collecting Washington sales tax on behalf of 3rd party sellers?
Washington passed a “marketplace facilitator law” which goes into effect on January 1, 2018. With this law, online marketplaces – like Amazon – that meet certain criteria are required to collect sales tax on behalf of 3rd party sellers using their platform.
Interestingly, according to sales tax attorney Mike Dillon of Dillon Tax Consulting, the letter of the new marketplace facilitator law does not precisely require Amazon to collect sales tax on behalf of Amazon FBA sellers. The fact that Amazon is collecting on behalf of all third-party sellers is due to an agreement between Amazon and Washington.
What changes for Amazon FBA sellers? According to Dillon, “everything and nothing has changed. He’s right, but that’s a little vague, so let’s break it down.
What is changing for Amazon FBA sellers when it comes to Washington sales tax?
First, since Amazon is now collecting on your behalf, an Amazon FBA seller will no longer be required to set up sales tax collection for Washington state in Seller Central after January 1, 2018.
Also, Amazon FBA sellers with sales tax nexus in Washington will still be required to file a combined Washington sales tax return/business & occupation (B&O) tax return by their usual due date, but how you fill out that for will change a bit.
While B&O stays the same (more on that shortly), according to the Washington Department of Revenue, Washington sales & use tax filers are now required to include the amount of sales tax Amazon collects on your behalf as a deduction. More precisely, tax filers should enter this amount as an “Other” deduction, and label the deduction “sales tax remitted by a third party.”
What stays the same for Amazon FBA sellers when it comes to Washington sales tax?
Not much else will change when it comes to Washington sales tax compliance for 3rd party Amazon sellers.
Nexus is still present for many sellers
According to the Washington Department of Revenue, Amazon FBA sellers with inventory stored in Washington are still considered to have sales tax nexus in Washington. You can read what Washington has to say about sales tax nexus on their website. In other words, if you have inventory stored in Washington, or have sales tax nexus in the state due to another reason (a location, employee, etc.) you are still required to register for a Washington sales tax permit.
This can create a confusing situation for multichannel Amazon FBA sellers. For example, say you sell on Amazon FBA and have built a storefront powered by WooCommerce. Because you have inventory stored in a Washington Amazon fulfillment center, you are considered to have sales tax nexus in Washington. In this case, while Amazon is collecting sales tax on your behalf for your Amazon sales, you are still required to collect sales tax from Washington buyers on your non-Amazon sales.
Sellers still required to file sales tax returns
Sellers with nexus in Washington are also still required to file and pay Washington B&O tax. Washington B&O tax is a roughly half-percent tax on your gross sales in Washington. Washington tax filers file and pay Washington B&O tax at the same time as filing the Washington sales & use tax return.
Rules stay the same for international sellers
U.S. states, like Washington, view international sellers just the same as any other out-of-state seller when it comes to sales tax compliance. In this case, if you are based outside the U.S., but sell on Amazon, Amazon will still collect sales tax from Washington buyers on your behalf. But you will also still be required by Washington to register for a state sales tax permit and file sales & use tax and B&O tax returns just like any other seller.
The Future of U.S. Sales Tax
Several other states have either passed laws similar to Washington’s “marketplace facilitator law,” or are working to pass these laws. Because U.S. sales tax is governed at the state level, each state uses a slightly different tactic when it comes to collecting sales tax.
South Carolina, for example, is suing Amazon for back sales tax, claiming that the eCommerce giant was on the hook for sales tax all along. Massachusetts, on the other hand, has requested that Amazon turn over information on all FBA sellers with inventory stored in the state’s fulfilment center, with the stated goal of pursuing these sellers for past due sales tax. And California sent letters to a swathe of Amazon sellers in September requiring that they prove that they were registered for a sales tax permit while making Amazon sales.
If nothing else, actions by the state and Amazon just prove that the world of sales tax is still in its Wild West stages, with many more changes yet to come!
To read more about Amazon collecting Washington sales tax, check out our “What Amazon FBA Sellers Need to Know about Washington Sales Tax After January 2018” FAQ blog post or feel free to ask questions in the comments.
Guest Author – Mark Faggiano
Mark Faggiano is the founder and CEO of TaxJar – A service built to make sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!