What Is Amazon Tax and How Is It Calculated?

“Amazon tax” refers to the sales tax applied to purchases made on the Amazon platform. This article explains the principles of sales tax on Amazon purchases, details the consumer’s experience with this tax, and clarifies the concept of use tax.

Sales Tax Fundamentals on Amazon Purchases

Sales tax is a consumption tax that state and local governments levy on the sale of goods and certain services. This tax is collected by the seller at the point of purchase. Sellers must collect sales tax based on “nexus,” which signifies a substantial connection between a business and a state.

Historically, sales tax nexus was established by a physical presence, such as having a store, office, or warehouse in a state. The landscape of sales tax collection shifted with the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. This ruling overturned the physical presence requirement, establishing that an “economic nexus” can also obligate sellers to collect sales tax. Economic nexus means a seller has met certain thresholds of sales volume or transaction count within a state, often around $100,000 in sales or 200 transactions annually.

Following the Wayfair decision, nearly all states with sales tax adopted economic nexus laws, leading to Amazon collecting sales tax in every state that has one. Many states also enacted “marketplace facilitator” laws, which shifted sales tax collection and remittance responsibility to online platforms like Amazon for third-party seller sales. This means Amazon handles sales tax collection for both its direct sales and most third-party seller transactions.

Sales tax rates vary across jurisdictions, encompassing state, county, and city taxes. Amazon applies the combined sales tax rate that corresponds to the buyer’s shipping address. This rate is based on the buyer’s location, which may include a combination of state, county, city, and district tax rates.

Most tangible goods are subject to sales tax. However, common exemptions exist and vary by state, such as certain food items, prescription drugs, and some types of clothing. The taxability of digital products like e-books or streaming services also depends on specific state laws.

The taxability of shipping and handling charges varies by state law. In many states, if the product is taxable, the associated shipping and handling charges are also subject to sales tax. Some states exempt these charges if they are separately itemized and optional.

Your Amazon Sales Tax Experience

When shopping on Amazon, sales tax is calculated and displayed to the customer before the purchase is finalized. The estimated sales tax appears on the product page, in your shopping cart, and at the final checkout screen.

After a purchase, customers can access detailed sales tax information on their order summaries or invoices. These documents provide a breakdown of the sales tax applied to each item, the tax rate used, and the total tax collected. This information is available within your Amazon account’s order history.

For organizations or individuals who qualify for tax-exempt purchases, such as government agencies, non-profit organizations, or resellers, Amazon offers the Amazon Tax Exemption Program (ATEP). To enroll in ATEP, you need to provide your business name, organization type, sales tax nexus location, and proof of tax exemption status, such as a state-issued certificate. The enrollment process involves navigating to the “Tax Exemption” section within your Amazon Business or Seller Central account, uploading documentation, and accepting terms.

Once enrolled and approved, Amazon will automatically apply your tax exemption to qualifying purchases. While ATEP applies to sales by Amazon and its affiliates, participation by third-party marketplace sellers is optional, meaning your exemption may not apply to all marketplace purchases. If sales tax was collected on an order that should have been exempt, you can request a refund from Amazon by contacting customer service and providing order details and exemption documentation.

When a return is processed for a taxable item, the sales tax collected on that item is also refunded to the customer. The refund process for sales tax mirrors the refund process for the item’s purchase price.

Understanding Use Tax

Use tax is a complementary tax to sales tax, levied on the storage, use, or consumption of tangible personal property within a state when sales tax was not collected by the seller at the time of purchase. This tax ensures that purchases from out-of-state retailers, where sales tax might not have been collected, are subject to a similar tax burden as in-state purchases.

A consumer might owe use tax on an Amazon purchase if a third-party seller did not have a nexus in the buyer’s state and therefore did not collect sales tax, even though the item was taxable. In such scenarios, the responsibility for remitting the tax shifts from the seller to the buyer. This applies to any item that would have been subject to sales tax if purchased locally, including any taxable shipping charges.

Consumers are responsible for reporting and remitting use tax directly to their state’s revenue department. For individuals, this is done through a line item or separate schedule on their annual state income tax return, due by April 15th. Businesses may have monthly, quarterly, or annual filing requirements, submitting the tax alongside their sales or vendor use tax returns. Failure to report and pay owed use tax can result in penalties and interest charges.