Chapter 6: Sales tax and your margins
What you'll learn: the two very different ways sales tax touches an Amazon business: the tax on your sales, which Amazon handles and which doesn't affect your margin, and the tax on your purchases, which can. This chapter is about the numbers. Permits, filings and state rules are for your CPA (Chapter 2.2).
General information only, not tax advice. Sales tax rules differ by state and by product, so check your state's Department of Revenue or ask a CPA before making decisions.
Sales tax on your Amazon sales: not part of your margin
When a customer buys your product on Amazon.com, Amazon adds any sales tax due on top of your price, collects it and pays it to the state under marketplace facilitator laws. Amazon: marketplace tax collection
For your numbers, that means:
- Your listed price is your price. If you sell at $24.99, the $24.99 is what your fees and profit are worked out from. The tax the customer pays on top passes through Amazon to the state and never becomes your money.
- You don't need to build sales tax on sales into your product calculations. (Whether your home state expects you to hold a permit or file is a separate, admin question; see the "Check your home state" box in 2.2.)
- No VAT and no digital services fee on Amazon's fees for US-based sellers, so the fees in Chapter 5 are the full cost.
This is a real simplification compared with many other marketplaces.
Sales tax on your purchases: the part that can affect your margin
When you buy stock from a retailer, you're normally charged sales tax at checkout, based on where the order is delivered (online) or where the store is (in person). Unless you buy tax-exempt, that tax is part of what the item really cost you.
ArbiSource shows the retailer's listed price, which doesn't include sales tax, and there's no sales-tax setting, because rates and exemptions vary so much from seller to seller. Many sellers don't factor purchase tax into each lead at all. That's a choice you can make, but it's good practice to know roughly what it does to your numbers, especially on thin margins.
The same product, two ways of buying
Here's the boxed toy from Chapter 5, selling at $24.99 and listed at $12.00 at a retailer. Amazon's fees, including one month's storage and an example inbound placement fee, come to about $8.86. We've used an example sales tax rate of 7%; yours depends on your state and locality.
| Paying sales tax (example 7%) | Buying tax-exempt with a resale certificate | |
|---|---|---|
| Sale price | $24.99 | $24.99 |
| Amazon's fees, storage and placement fee | −$8.86 | −$8.86 |
| Retailer's listed price | −$12.00 | −$12.00 |
| Sales tax paid at checkout | −$0.84 | None |
| Profit before prep and shipping | $3.29 | $4.13 |
| ROI | 26% (on $12.84) | 34% (on $12.00) |
Two things stand out:
- On this product, sales tax takes about a fifth of the profit. On a product with a bigger margin it matters less; on a thin one it can be the difference between a profit and a loss.
- ROI moves more than profit, because the tax both lowers the profit and raises the amount you've invested.
Two optional approaches, whichever suits you:
- Per lead: when you do the Money check, add your sales tax rate to the buy price (for example, $12.00 × 1.07 = $12.84) and see if the deal still works.
- Across the board: set your minimum ROI filter a few points higher than you otherwise would, so deals that only work before tax drop out automatically (4.3).
Buying tax-exempt for resale
Buying tax-exempt is how many US sellers protect their margins. The main routes:
- A resale certificate: with a sales tax permit from your state, you can give retailers a resale (exemption) certificate for stock you're buying to resell. Retailers' policies differ: some run a tax-exempt program you register with online, some only accept certificates in store, and some don't accept them at all. Check each retailer's tax-exemption page.
- Amazon Business tax exemption (ATEP) for buying on Amazon to resell, such as A2A flips (Chapter 16). Upload your certificate and qualifying purchases are tax-free. Amazon Business Tax Exemption Program
- Where your stock is delivered: online orders are taxed by delivery address, so some sellers ship online orders to a prep center in a state without sales tax. It isn't a loophole for everything (prep in those states can cost more, and you may still owe use tax at home), so ask your CPA before relying on it.
A resale certificate covers stock you'll resell, nothing else. Using it for personal purchases, packing supplies or equipment is tax fraud.
Income tax
Your profit is taxed too, through income tax and self-employment tax (Chapter 2.2). The amount depends on your total income, so we don't build it into product calculations. Your CPA handles the returns; your job is to keep tidy records of every purchase, including the sales tax you paid or the fact that it was exempt.
In ArbiSource
- Buy prices exclude sales tax. Every profit and ROI figure assumes you pay the listed price. If you're tax-exempt, that's exactly right.
- If you pay sales tax, use either of the optional approaches above. You can also type a tax-inclusive buy price into a result's Buy box to see the effect on that product. For example, $59.99 plus 7% is $64.19, which takes one product's profit from $21.71 to $17.51 and its ROI from 36.2% to 27.3%. The edit isn't saved.
Checklist
- I know the sales tax Amazon collects on my sales doesn't affect my margin
- I know sales tax on my purchases is a real cost unless I buy tax-exempt
- I've decided how (or whether) I'll allow for purchase tax: per lead, or with a higher minimum ROI
- I'll only ever use a resale certificate for inventory