Question: We are a small business in California. We started a E commerce business using Amazon's FBA (Fulfilled by Amazon) service. Do we need to collect sales tax for our Amazon sales? If so, how is it calculated? Where it get shipped to?
Answer: Since you are located in California, first, you need to understand California sales tax rule on internet sales. Internet sales( with some exception) shipped inside of California are subject to California Sales tax. Internet sales shipped outside of California may not subject to California Sales tax. If the buyer located in the same "district" as your business, you collect your district rate plus CA sales tax rate( 7.25% in 2018). For California buyers located outside of the district where your business is located, you collect only CA sales tax rate.
However, "Dropshipping" arrangement can makes sales tax a lot more complicated. By using Amazon FBA, your products might be stored in one or many of Amazon's Fulfillment center in any states. This means you might have sales tax nexus in that state and therefore, you must register, collect and submit sales tax in that state!!
What a nightmare! Yet it is true. Majority of states levy sales taxes and they all have different rules. Starting Jan 1, 2018, Amazon has started to collect and remit sales tax for sales to Washington State( where Amazon headquarter locates). But for sales to rest of other states, it is the seller's responsibility to determining nexus, register in nexus states, collect and remit sales taxes accordingly.
If you would like to make an appointment to discuss more, please give this office a call 415-704-8989 or email me at ymckee@virtualcpaforyou.com. Book a meeting online. More articles see www.virtualcpaforyou.com
Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.