Sales Tax for Amazon Launchpad
January 23, 2017 | Ecommerce
By Laura McCamy
In 2015, Amazon started a new service to help ecommerce startups: Amazon Launchpad. The platform gives a boost to entrepreneurs by providing extra space to tell their company story, extra promotion on Amazon, and business advice.
Amazon Launchpad vendors get special treatment, but they need to approach sales taxes like any other Amazon vendor. Here is what you need to know to get you started.
How Do I Join Amazon Launchpad?
If you’re an entrepreneur interested in Amazon Launchpad, your first hurdle is to apply and get selected. Most of the companies chosen for the platform have received startup cash through crowdfunding sites like Kickstarter or accelerators such as Y Combinator. Amazon Launchpad partners with several crowdfunding sites and venture capital firms.
While it helps to be a Silicon Valley darling, that isn’t the only route to Amazon Launchpad. The platform also accepts applications from Amazon vendors.
Amazon Launchpad Inventory
Amazon Launchpad comes with a few strings attached. Launchpad vendors must use Fulfillment by Amazon (FBA) and pay an additional 5 percent fee to Amazon on every sale. This fee comes off the top, which means you pay 5 percent of everything that comes in, including the sales tax you collect.
Amazon FBA brings its own set of sales tax obligations. Your inventory in an FBA warehouse will trigger sales tax nexus in many states, even if you have no other physical presence there. To stay on top of your FBA sales tax obligations, track the Amazon warehouses where your inventory is stored.
Sales Taxes on Shipping and Packaging for Amazon Launchpad Startups
One of the trickiest sales tax issues that Amazon Launchpad sellers face is sales tax on shipping. In some states, such as California, shipping is not taxable if the charge is stated separately from the cost of the product. In others, such as Texas, shipping on ecommerce orders is always subject to sales tax. In Indiana, it gets even more complex: Shipping is taxable unless you send your orders through the U.S. Post Office.
Handling charges, which can include the cost of packaging, may be subject to sales tax, even if they are stated separately. Again, this varies from state to state, so look to the sales tax rules in the states where you have nexus.
When entrepreneurs set up their Amazon store, the sales tax settings are an important (and easy to overlook) function. Be sure and adjust your sales tax settings when you get nexus in a new state through Amazon FBA — and be sure to find out whether that state’s sales tax also applies to shipping.
Tax-Exempt Sales on Amazon Launchpad
Some Amazon Launchpad sales won’t be subject to sales tax. Purchases by nonprofits or religious organizations are often tax-exempt. Taxability will depend on the state and on the type of products you sell. Wholesale sales are also tax exempt (except in Hawaii).
In addition, your product could be exempt from sales taxes in some states, while subject to sales taxes in others. Taxes on clothing and food items vary from state to state.
Understanding of your sales tax obligations is an integral part of being an ecommerce entrepreneur. The resources available on Amazon Launchpad may help you extend your reach and accelerate your learning curve, but the final responsibility for your sales taxes will fall to you.
Amazon Launchpad offers invaluable startup assistance. Sales tax compliance software (which syncs seamlessly with the Amazon platform) can give you the same kind of helping hand when it comes to sales taxes, to make sure your startup doesn’t get bogged down by penalties, interest, or late filing charges.
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