Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Always consult with qualified tax professionals or attorneys for specific guidance regarding your business situation.
Selling on Amazon has never been more profitable, but it has also never been more complex when it comes to tax compliance. With Amazon charging 2.9% per transaction to calculate and remit these taxes and states continuously updating their economic nexus rules, understanding Amazon sales tax requirements can feel overwhelming.
If you’re an Amazon seller wondering whether you need to collect sales tax, where you might have nexus, or how Amazon’s marketplace facilitator laws affect you, fear not. This guide will help you stay compliant, avoid penalties, and protect your margins.
What is Amazon sales tax and why does it matter?
Amazon sales tax refers to the state and local sales taxes collected on orders sold through Amazon’s marketplace. The amount changes based on the state and city where the buyer lives and the location of the seller, and understanding these obligations is crucial for maintaining compliance and protecting your profit margins.
Here’s the game-changing fact: Amazon.com originally collected sales tax only from five states as of 2011, but as of April 2017 collects sales taxes from customers in all 45 states that have a state sales tax and in Washington, D.C. This dramatic shift means Amazon now handles most sales tax collection automatically, but sellers still have important responsibilities.
The marketplace facilitator revolution
Thanks to marketplace facilitator laws, Amazon has become responsible for collecting and remitting sales tax in most states. This is fantastic news for sellers because it significantly reduces your administrative burden. In most U.S. states, Amazon acts as a marketplace facilitator, handling the calculation, collection, and remittance of sales tax on behalf of third-party sellers.
However, don’t assume you’re completely off the hook. While Amazon handles the collection and remittance, you still need to understand your obligations, especially if you sell on multiple platforms or have economic nexus in various states.
However, while Amazon takes care of most tax collection, you still need to monitor where you have nexus, keep up with state-level requirements, and file taxes in states where Amazon doesn’t act as the facilitator. And if you’re selling on multiple platforms, your obligations multiply.
Understanding economic nexus: The $100,000 rule
Economic nexus is the invisible thread that can tie you to tax obligations in states where you’ve never set foot. Following the landmark 2018 South Dakota v. Wayfair Supreme Court decision, states can now require businesses to collect sales tax based on their economic activity rather than just physical presence.
Currently, 25 states limit economic nexus to sales meeting a dollar threshold (e.g., $200,000), while others use both sales thresholds and transaction counts. The most common threshold is $100,000 in sales per year, though this varies by state.
Recent changes to watch
The landscape is evolving rapidly. As of July 1, 2025, 15 states and counting have eliminated the 200-transaction threshold for economic nexus, simplifying compliance for many businesses. For example, as of January 1st, 2025, Alaska removed its 200 transaction threshold to reduce compliance stress for smaller merchants.
The Amazon FBA nexus challenge
If Amazon stores your inventory in a state, you may owe sales tax there, period.
Even if you’ve never set foot in that state, housing stock in one of Amazon’s fulfilment centres creates a physical nexus. That means you’re potentially liable for collecting and remitting sales tax.
The trick here is that Amazon doesn’t always tell you where your inventory lives.
You’ll need to track it yourself or use a tool (we’ll cover those shortly) to stay compliant.
Key FBA considerations:
- Inventory location matters because your products stored in Amazon warehouses can create sales tax nexus
- Amazon may distribute your inventory across various fulfillment centers in multiple states
- You need to monitor where your inventory is stored to ensure compliance
- Consider using services like Avalara or TaxJar to help track your nexus across states
Amazon VAT and cross-border tax complications
For sellers engaged in international commerce, Amazon VAT (Value Added Tax) requirements add another layer of complexity. When selling to customers in European countries or other international markets, you may need to understand different tax systems entirely.
Cross-border tax obligations can include:
- VAT registration in multiple countries
- Import/export tax considerations
- Currency exchange implications for tax calculations
- Different tax rates and exemptions by country
Sales tax permits: Your gateway to compliance
Once you’ve determined where you have nexus, you’ll need to obtain sales tax permits in those states. A sales tax permit (also called a resale certificate or tax license) allows you to legally collect sales tax from customers and provides you with the authority to purchase inventory without paying sales tax to suppliers.
The registration process varies by state, but generally requires:
- Business information and registration details
- Estimated sales volumes
- Banking information for tax remittance
- Payment of registration fees (where applicable)
Leveraging technology for tax compliance
Managing sales tax compliance manually is virtually impossible for growing Amazon businesses. Fortunately, technology solutions can automate much of the heavy lifting.
Popular tax automation tools
Avalara
Comprehensive tax compliance software that integrates with Amazon and other platforms to automatically calculate, collect, and remit sales tax. Provides nexus tracking and filing services.
TaxJar
User-friendly solution specifically designed for e-commerce businesses. Offers economic nexus monitoring, automated filing, and detailed reporting features.
Both platforms can help you track where you have nexus, calculate accurate tax rates, and ensure timely tax remittance. While these services require investment, they often pay for themselves by preventing costly compliance mistakes and freeing up your time to focus on growing your business.
Understanding Amazon’s tax reporting
Amazon provides several tax reports to help you understand your obligations:
Sales tax calculation report
This report shows YOUR sales tax liability. This is YOUR responsibility, as the seller, to report & remit. Use this for states where Amazon doesn’t collect tax on your behalf.
Marketplace tax collection report
This covers taxes Amazon has collected and remitted for you, providing transparency into Amazon’s facilitator activities.
Combined sales tax report
A comprehensive view of both your responsibilities and Amazon’s collections, essential for complete tax compliance.
The financial impact on your business
Understanding the financial implications of sales tax compliance is crucial for maintaining healthy profit margins. Tax Foundation reports the average combined state and local sales tax rate in the U.S. is about 7.5% as of 2025, though rates can vary significantly.
Consider how sales tax affects your:
- Amazon Seller Fees calculations
- Strategies to protect profit margins
- Ability to calculate your net margin accurately
- Overall approach to Making More Profit on Amazon
Cost considerations
Remember that compliance isn’t free. Factor these costs into your business planning:
- Amazon charges 2.9% per transaction to calculate and remit these taxes
- Professional tax software subscriptions (typically $20-200+ monthly)
- Accountant or tax professional fees
- Time invested in compliance activities
- Potential penalties for non-compliance
Practical steps for Amazon sellers
Here’s your roadmap to Amazon sales tax compliance:
Step 1: Assess your current situation
- Review your sales by state for the past 12 months
- Identify where you may have economic nexus
- Determine if you’re using FBA and where your inventory is stored
- Check if you sell on other platforms that could affect nexus calculations
Step 2: Research state requirements
- Understand the specific thresholds for states where you do business
- Note which states have eliminated transaction thresholds
- Identify states where Amazon collects tax on your behalf versus where you’re responsible
Step 3: Implement tracking systems
- Set up economic nexus monitoring
- Track FBA inventory locations
- Monitor sales volumes across all platforms
- Document your compliance efforts
Step 4: Register where required
- Obtain sales tax permits in nexus states
- Set up filing schedules (monthly, quarterly, or annually)
- Establish systems for tax remittance
- Create backup documentation processes
Step 5: Stay current
- Monitor changing state laws and thresholds
- Review your nexus status quarterly
- Update your systems as your business grows
- Consider professional help as complexity increases
Common mistakes to avoid
Even experienced Amazon sellers get tripped up by sales tax. Here are some of the most common traps and how to stay clear of them.
Assuming Amazon handles everything
Amazon collects tax for you, but you’re still responsible for nexus tracking and filings in some states.
Ignoring economic nexus
If you cross state thresholds, you may owe tax, even without physical presence.
Delaying registration
Waiting until you’re caught out can lead to penalties. Register early if you’re nearing a threshold.
Mixing personal and business finances
Keep separate accounts to simplify reporting and avoid red flags.
What’s the future of Amazon sales tax?
The sales tax landscape continues evolving rapidly. We’re seeing trends toward simplification, with more states eliminating transaction thresholds and standardizing requirements. However, this also means increased enforcement and higher expectations for compliance.
As states become more sophisticated in their tracking capabilities and Amazon’s reporting becomes more detailed, the days of “flying under the radar” are ending. Proactive compliance is essential for sustainable business growth.
Sales tax doesn’t have to hold you back
It’s complex, yes, but manageable with the right systems in place. The best Amazon sellers don’t leave compliance to chance. They plan for it, build it into their workflows, and lean on tools that make life easier.
Marketplace facilitator laws have taken some of the pressure off, but the responsibility still rests with you to know your nexus, track your obligations, and stay compliant across every channel.
Get it right early, and you’ll avoid penalties, protect your margins, and set your business up for scalable, stress-free growth.
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