To the horror of many sellers, Amazon sent a notice on Thursday that it would begin collecting sales tax on seller fees and services, but sellers were left with many questions, and the company did not respond to our request for more information.
Many readers forwarded the letter with questions and comments. "I just got this notice from AMZ and I swear I'm ready to stop selling online," wrote one seller. "This is too much. We are small, little sellers and we can't comprehend all this tax stuff. Taxes on Referral fees; subscription fees????"
The taxes affect sellers based on the state in which they are located, though Amazon did not provide such a list, and it impacts FBA *and* non-FBA sellers.
Here's the letter from Amazon to sellers:
We are reaching out regarding the possible tax implications on some seller fees beginning June 1, 2019.
Some states consider specific Selling on Amazon fees such as per item, order, and refund fees as a taxable electronic service. Similarly, some states consider FBA inventory prep fees such as bubble wrap, polybag, taping and labels as taxable. Seller fees is not increasing however; you might see tax applied to some seller fees.
For more information regarding this change, refer to the FAQ below:
- What fees are taxable?
Selling on Amazon fees (based on your business location):
• Referral Fee
• Subscription Fee
• Variable Closing Fee
• Per-item Fee
• Promotion & Merchandising Fee
• Refund commission Fee
• Checkout by Amazon
• Sales Tax Collection Fee
FBA service fees (based on order fulfillment center):
• Labeling Fee
• Polybagging Fee
• Bubble wrap Fee
• Taping Fee
• Opaque Bagging Fee
• Repackaging Fee
The above list is some common seller fees. For a complete list of seller fees, refer to the following Help pages:
Selling on Amazon Fee Schedule: https://sellercentral.amazon.com/gp/help/200336920
FBA features, services, and fees: https://sellercentral.amazon.com/gp/help/G201074400
- How will tax be calculated on my seller fees?
For Fulfillment services, the fulfillment center performing the taxable service will determine the tax rate.
For Selling on Amazon fees, the location of your business in a taxable state will determine the tax rate calculated.
- When does this begin and where can I see any tax collected on my seller fees?
Beginning June 1, 2019, Amazon will start collecting sales tax on taxable seller fees. Tax collected will reflect with the order fee on the transaction details of your Payments Reports. Date range payment reports will continue to reflect the sum of fees per order.
- Can I opt out of using FBA fulfillment services that may be taxable?
FBA services are performed on your items when you elect to purchase these services from Amazon or when the packaging and prep requirements are not met. To manage your FBA settings and minimize FBA service fees by prepping your items before sending to an Amazon fulfillment center, visit Fulfillment by Amazon settings at (link).
To learn more about packaging and prep requirements, refer to the Help page available at https://sellercentral.amazon.com/gp/help/200141500.
For more information on Amazon fees, please visit the Selling on Amazon Fee Schedule at https://sellercentral.amazon.com/gp/help/200336920.
Amazon Seller Services
Etsy already collects tax in certain states on applicable seller fees where required by law, but the only information we could find is on this page
where it states, "Where applicable, state sales tax will be applied to the Pattern subscription fee and the Etsy Plus subscription fee charged by Etsy."
eBay has a help page about taxes
where it mentions taxes on seller fees, but only VAT and GST: "Depending on tax legislation where you live, local Value Added Tax (VAT), Goods and Services Tax (GST), or similar consumption tax might apply to your eBay seller fees."
A seller on Reddit
said, "It's worth mentioning that many of the electronic services we use such as accounting, sales tax, payroll etc.. have started charging sales tax within the last 6 months."
Paul Rafelson of the Online Merchants Guild
compared the taxes described in Amazon's letter to sellers to VAT tax systems (Value Added Tax).
"If this is allowed, then states will have essentially created a VAT system, where they are going to tax direct input costs along the supply chain. But unlike VAT, there is no refund mechanism, so the sellers' price would have to reflect the double charge, so that the cost could be pushed down to the consumer."
He said that while businesses pay sales tax too, items that are taxed at the business level are typically overhead (not including Cost of Goods Sold), such as office computers - and are not direct / per unit costs.
"Sales tax law and policy is written to avoid a scenario like this where there is a direct double tax on per unit inputs that would directly be pushed down to the consumer," he said.
One concept we find outright absurd is that Amazon would collect sales tax on what it calls a "Refund commission fee."
Note that we are also waiting to hear back from eBay to see if it has similar plans.