A Guide to Amazon’s Recent Tax Compliance Requirements for Sellers. Keeping up with tax compliance can feel overwhelming, especially with so many recent changes. Staying on top of the latest updates is the key to keeping your business running smoothly and avoiding unnecessary stress.

New Service Provider Impact

Amazon’s switching things up for European sellers, moving from ASE to AEU as its legal entity starting August 1, 2024. Sellers in the UK, Germany, France, Italy, Spain, Netherlands, Belgium, Poland, and Sweden will now get invoices straight from their local AEU branch. Local VAT rates will kick in for fees like FBA and referral fees, with the tax automatically deducted from payouts. If you’re outside these nine countries, it’s business as usual. You’ll stick with AEU’s Luxembourg office and keep your current VAT setup. The agreements and payment terms are changing, but your everyday tasks — like account access, listings, and customer reviews — will stay the same.

Sales Tax Collection Process

Amazon handles sales tax for third-party sellers as a Marketplace Facilitator, automatically calculating, collecting, and remitting taxes across 45 states with sales tax laws. Its robust tax system calculates accurate rates, factoring in state, county, city, and special district taxes. Amazon charges a 2.9% fee per transaction for these services, though sellers have the option to opt out and manage taxes on their own. The system also navigates tricky tax rules, like destination-based versus origin-based taxation, and adjusts for different tax rates across product categories.

1099-K Form Updates

The IRS has introduced new 1099-K reporting rules with a phased approach, setting a $5,000 threshold for the 2024 tax year. This replaces the old $20,000 and 200-transaction limit. Platforms like Amazon now report your total gross sales, including shipping fees and sales tax, no matter how many transactions you’ve had. Third-party payment processors send 1099-K forms to you and the IRS by January 31 of the following year, helping ensure online marketplace income is properly tracked.

Sales Tax Nexus Rules

If you’re an Amazon seller, having inventory, warehouses, or employees in a state means you’re required to start collecting sales tax right away. Economic nexus kicks in when your sales hit certain thresholds, like $100,000 annually or 200 transactions, but these limits vary depending on the state.

Most states require you to register for a sales tax permit once you’ve established nexus. California sets the bar higher at $500,000 in sales, while New York requires both $500,000 in revenue and 100 transactions. Keeping a close eye on your sales is key. Some states count both taxable and exempt sales toward their thresholds, while others exclude certain types of transactions altogether.

Record Keeping Requirements

Amazon sellers need to keep thorough records of their Cost of Goods Sold (COGS), tracking every purchase along with the starting and ending inventory to stay on top of tax reporting. It’s important to document all Amazon marketplace fees, including referral fees, FBA costs, storage charges, and advertising expenses, as these are automatically deducted from your sales. Don’t forget to save receipts for every business expense, from shipping supplies to office materials, since these costs play a key role in your tax deductions and financial records.

Seller Central Tax Reports

Amazon's Seller Central gives you three essential tax reports to keep your obligations and compliance on track. The Sales Tax Calculation Report lays out your tax liability, showing exactly what you need to collect and remit to state authorities. The Marketplace Tax Collection Report highlights the taxes Amazon takes care of for you through its Marketplace Facilitator program, covering most U.S. states. The Combined Sales Tax Report pulls everything together, combining seller and marketplace tax data into one clear view, so you can easily track total tax collection across all your transactions while staying aligned with Amazon seller policies.

Wrapping it Up

Keeping up with these changes and managing your tax responsibilities can spare you unnecessary stress. Organized records and adherence to the latest rules ensure your business stays steady and on the right track.