As long-time readers of this blog know, I pay sales tax in 10 states right now with two more in the works. I’ve had a lot of challenges along the way and big-time gripes with Amazon.com for how little help they’ve given their FBA sellers for this important topic. Their super big sellers have bookkeepers and expensive technology to do all that for them. We small fry are on our own. This week I thought I’d share what I’ve learned to hopefully make your experience better.
First, to recap, this is an advanced issue. All new sellers file this blog post away until later, OK? For the first year or so I didn’t have a sales tax certificate and I paid sales tax as I bought my inventory. I didn’t pay sales tax to Texas or any other state. Once I got my sales tax certificate, I paid tax to the state of Texas on sales in Texas. A couple of years ago, the winds of change started blowing through the Internet world as Amazon.com started to negotiate settlements with states and began paying sales tax. While legally everyone was always supposed to pay sales tax in different states for stuff sold over the internet, no one did. Now it seems like a good idea to get on board. I started signing up to pay other states when Kat Simpson and Michael Rice came out with their book on sales tax because Amazon had a nexus in those states and I had sales there. My suggestion* is to first learn what you are doing in selling on Amazon, and then learn about sales tax, etc. A new law in the works in Congress may change things for online sellers as well.
Today’s blog post is for those of us who use Amazon.com to collect our sales tax for us.
Doing it the Hard Way: Amazon’s Reports
Amazon switched its sales tax reporting service a few months ago and it was excruciating. Amazon provided no help whatsoever online or by phone. There is no one there who can answer your questions about sales tax reports or related sales tax issues. Save yourself the grief of trying. It drove me nuts. Anyway, suddenly the reports/excel spreadsheets we got from Amazon were all jumbled up and it was impossible to do a simple sort to figure out what you owed for each state. I had to go through line by line and look at every sale and add up the sums manually on a piece of paper – it was outrageous!
My assistant who is an advanced Excel user figured it out for us. You basically have to set up the spreadsheet to “freeze” cells and then sort by state. You then use the “filter” function to see each individual state. Huh? Don’t worry! She created a YouTube video for us. You can look at my previous Step-by-Step on sales tax reports to see the screenshots and directions for downloading the sales tax reports, but remember that the step for sorting the excel spreadsheet is now covered by the YouTube video listed below:
- Inside SellerCentral, go to “Reports” and click on “Tax Document Library” on the pull-down menu.
- Under “Sales Tax Reports” click on “Generate a tax report”
- You will be able to select a month or a custom date range (for quarterly or annual payments)
- Click on “Generate.”
- It may take a few minutes to generate your report. When it is ready, there will be a clickable button that says “Download Tax Report” under “Sales Tax Reports”
- The report will be in a “.csv” format. Open it with Microsoft Excel
- Follow the directions on this video (http://bit.ly/ExcelSortSalesTax) to sort your spreadsheet and to see how much Amazon collected for you for each state. If you are only collecting for one state, then you can ignore this step and total up the spreadsheet to get your numbers.
- Go to the website for each state (you have them all written down somewhere, right? Too bad Amazon won’t help you with that, either) and file your taxes.
I suggest that you know how to do this tedious process so you can make sure the right amounts are being collected in the beginning. I discovered early on, for example, that some of my products were showing up as “exempt” and sales tax wasn’t being collected properly. This was a setting issue that I was able to fix. See my previous blog post and Step-by-Step on sales tax to learn more about my early mistakes and how I fixed them.
I still pull my Amazon report every month (OK, my assistant pulls it), but it is mostly to handle the first payment for new states. I like to check each new state as I add them to make sure everything is working OK with TaxJar.com and Amazon.
Doing it the Easy Way: TaxJar.com
OK, are you freaked out yet? Take heart! TaxJar.com is an online seller’s new best friend. The online program connects with Amazon and PayPal and pulls the data from there so you don’t have to. The software is extremely easy to use. It tells you what you owe, keeps track of what you’ve paid and sends you reminders of when it is time to pay.
I was an early tester/user of the software and was delighted that they listened carefully to me and other FBA sellers to understand what we need and what the challenges are for paying sales tax in different states. They even asked us to send in screenshots of how we file for each state so they could understand the data required by each state besides the numbers. For example, some states require you to break out your sales by region, county or city. It is a royal pain in the butt and TaxJar made it easier for us. Before these changes, it was still necessary to pull the Amazon report and do it the hard way.
TaxJar.com has relieved one of the biggest hassles of paying sales tax – figuring out how much you owe and paying on time for different states with different filing requirements. I created a Step-by-Step for you HERE that shows you what TaxJar looks like and how it works although you probably won’t need it after the first time. The program is intuitive.
The first month is free and then it costs $9.95 a month if you have 1,000 or fewer transactions a month, $19.95 for up to 5,000 transactions and $49.95 for up to 15,000 transactions per month. You can also get an additional two months free each year if you pay annually.
In the process of developing their company, they’ve become experts on sales tax in every state. I was concerned that Amazon was not collecting correctly for Pennsylvania and could not get anyone at Amazon to explain it to me. The guys at TaxJar figured it out and sent me an email in less than a day. Pennsylvania is different from most states in how it figures sales tax obligation. I was confused and Amazon’s service was correct.
If you are collecting for Texas only, you may not need TaxJar. Amazon’s report will be sufficient for you since we are a flat-rate state with easy-peasy calculations and filing [Come to Texas y’all, we make it easy to file taxes!]. For any other state with region/county and/or city requirements, or when you have multiple state obligations like I do, you will definitely want it. Arizona, for example, has a jillion counties and I have to file my taxes monthly.
Once again – here’s the Step-by-Step for TaxJar.com: http://bit.ly/TaxJar
*I am not a CPA or a Lawyer and I strongly suggest you consult with an expert on the requirements of your state if you have any concerns or questions about sales tax and Internet sales.
If you use the links in this post to give TaxJar.com a free trial and decide to stay a customer, I will receive a small commission. You are welcome to go directly to the site and sign up, also. There is no difference in price. I am a happy customer of TaxJar.com which is why I recommend them. When I originally wrote this post, they did not have an affiliate program and I was still delighted to talk about my experience with them.