The Amazon sales tax exemption is a relic of a bygone age. If you're a small retailer who operates in your state and has a substantial "physical presence" in the state, you may be able to claim this exemption from the tax department. While this option may sound appealing, it's a temporary solution and you'll probably need to change it before you can apply. So what's the best way to get it?
It's a relic of a long-gone era
The question of whether Amazon sales tax exemption is a recollection of the past remains unanswered. The Seattle-based online behemoth calls the tune in many sectors, and it has immense economies of scale and operating efficiency. The state deserves to tax its competitors in an equitable manner, but it shouldn't be rewarded for it through additional protective legislation.
The Oklahoma government announced last month that Amazon would begin collecting sales tax for online purchases from March 1, 2017. This is in line with the proposed legislation, which calls for retailers to collect sales tax and to notify customers of their tax obligations. If passed, the act would force Amazon to collect sales tax and pay millions of dollars in back taxes to state and local governments. And it would force the company to terminate advertising relationships with its 10,000 California-based Amazon Associates.
It's only possible if retailer has substantial "physical presence"
For on-line retailers, the sale tax exemption is only available if the retailer has a "substantial physical presence" in the state where the customer lives. This is the case for catalog stores and on-line retailers. But the U.S. Supreme Court recently ruled that a state's sales tax exemption for on-line retailers violates the interstate commerce clause and burdens retailers unfairly.
However, this rule is not entirely clear. The Quill Court ruled in 1992 that the physical presence requirement must be justified by an effort to prevent undue burdens on interstate commerce. The court based the rule on the Complete Auto requirement, which requires that a tax has a significant nexus with an activity. While the Quill decision was controversial in 1992, three justices sided with it because they did not want to throw out past precedent. One justice disagreed and said that there was no relationship between a sales tax exemption and Commerce Clause considerations.
However, the tax-free nature of online retail has given Amazon an advantage when it was needed. It was a major advantage for Amazon when taxing authorities started to crack down on online sellers. Justice Kennedy's decision ruled that mail-order sales in 1992 were worth $180 million. Now, remote sellers made over $500 billion in sales last year, a figure that is unlikely to slow down anytime soon.
As a result, states have increased cross-border sales and e-commerce. While Amazon sales tax exemption is only available if a retailer has a substantial "physical presence" in the state, states have been increasingly asserting affiliate nexus principles to impose jurisdiction over out-of-state retailers. These states have been aggressive in asserting their jurisdiction. So it is important to be aware of the rules and limitations of affiliate nexus.
It's temporary
While you may be wondering whether the Amazon sales tax exemption is permanent or temporary, you should know that the tax-free status is only valid until 2022. While Amazon does charge sales tax in most states with fulfillment centers, some don't. This is because the tax collection rules of some states are different from the laws of others. Here are some ways you can make sure you don't violate state tax laws by selling on Amazon.
First, if you're not a government purchaser, you must submit documents that prove you're exempt from sales tax. You can find a guide to filing documents on Amazon's website that includes information about each state and the type of organization that has the exemption. Regardless of the method you choose, be sure that your documents are signed and dated, and include accurate descriptions of products. In addition, make sure that you've included valid state tax IDs on all documents.
The most common way to avoid the state sales tax is to sign up for Fulfillment by Amazon (FBA). Fulfillment by AWS shields sellers from sales tax offices in many states. But this solution is not permanent. Amazon must still meet the laws of each state, because they have fulfillment warehouses in many states. Then, once a seller becomes compliant, it pays taxes only on future sales. Amazon sales tax exemption is temporary, but it is worth checking into.
There are some exceptions to this rule, however. Clothing and accessories are exempt from sales tax, including formal clothing and athletic gear. Other platforms, such as eBay, must collect sales tax from buyers in these states. Amazon does not charge sales tax for sales made in nexus states. You can also get more information by downloading Amazon's sales tax reports. However, you must know the taxing districts and how to calculate your sales tax rate.
It's optional
The Amazon Tax Exemption Program allows buyers to handle the sales tax collection process manually. Buyers can then select the appropriate sales tax exemption for the items they are purchasing. This program is optional and primarily rests on Amazon and the sales tax-exempt buyer. This program can be beneficial to both Amazon and buyers. However, the benefits are not immediately apparent. In order to fully understand its implications, it's best to talk with an accountant.
A seller can become tax-exempt by registering through Amazon's Tax Exemption Program. To use this service, the seller simply creates an account on Amazon for purchases made through the university. Then, the account must be registered under a university business account. The corporate card office can send you an invitation to register an account. If you are a student, you must use your Amazon account for purchases made on Amazon.
Amazon collects and organizes sales tax information online. The report contains information regarding the overall obligation and state-by-state tax rates. It is not required to file a separate sales tax return. Moreover, Amazon will automatically report sales tax information to the appropriate tax authorities. In addition to these benefits, selling through Amazon requires very minimal input from the seller. Furthermore, the seller does not need to file a sales tax return.
When choosing to become a tax-exempt seller, Amazon provides an easy way for sellers to comply with sales tax regulations. Sellers must sign an exemption certificate and provide the details of their organization and state. When they have completed the process, Amazon removes the sales tax from the purchase. If the buyer does not sign the certificate, the seller must re-register and pay the applicable tax. The seller can use ATEP to apply for tax-exemption from the buyers in future transactions.
It's not worth it
Until recently, Amazon has avoided sales taxes in most states. Today, brick-and-mortar retailers must collect sales taxes from customers purchasing goods on their sites. That changed when shoppers started choosing to buy big-ticket items from Amazon instead of traditional brick-and-mortar retailers. Today, Amazon captures almost $1 of every $2 spent online by Americans. Clearly, the sales tax exemption isn't worth it.
While the monetary benefit of Amazon's sales tax exemption is undeniably great, the reality is much more complicated. Amazon has used this advantage to expand its operations, and it has lobbied for subsidies for new facilities. As a result, the state's economy has benefited from this enormous expansion, and the company is also creating new jobs in Main Street areas. Between 2005 and 2014, Amazon built 77 fulfillment centers, more than half of which were subsidized. Despite this, it did not generate much in the form of tax revenue for local communities.
As a seller on Amazon, you'll need to file ongoing returns with the state and local tax authorities. How often you file will depend on how much money you generate. The first year, most businesses file their taxes annually, but as sales increase, state and local tax authorities may assign more frequent filing deadlines. Therefore, if you're wondering if an Amazon sales tax exemption is worth it, you should consider hiring a professional sales tax accountant to help you manage the process.
There are some other reasons to use the Amazon tax exemption program. In order to avoid paying sales tax on items you sell on Amazon, you need to be aware of state laws concerning the sale of your goods. Whether or not you have a business nexus with the state will depend on the type of products you sell. A sales tax exemption isn't worth it if the buyer's state doesn't require taxation at all.
