Amazon founder Jeff Bezos is one of the wealthiest people in the world, and he started the company in a garage! Now, Amazon sellers and other e-commerce sellers sourcing products for Amazon have turned side hustles into thriving businesses. But, with business success comes tax. As such, we’ll use this article as a guide to being and becoming Amazon tax exempt.
You’ve worked hard building a successful Amazon sales platform. We want to help you keep as much of your earnings as possible. In the rest of the article, we’ll explain the Amazon Tax Exemption Program and how it can help your business.
What Is the Amazon Tax Exemption Program (ATEP)?
Normally, when you purchase an item, you need to pay sales tax. This places a tremendous burden on sellers, as they need to collect these taxes. While buyers pay the tax, sellers collect and remit them to tax collectors. This has the potential to impose a major administrative burden on Amazon sellers.
However, some businesses and organizations are exempt from paying sales tax. In general, sales tax applies to purchases made by final consumers and not other businesses. When retailers purchase goods for resale, they often receive a sales tax exemption for those purchases. The government knows it’ll collect sales tax on the final sale, so it exempts this initial one.
What It Means to be Amazon Tax Exempt
When a business receives tax exempt status, it must show a certificate proving it. Collecting these certificates from every tax-exempt buyer poses a major administrative challenge to Amazon sellers. As a result, Amazon created its Amazon Tax Exemption Program (ATEP). When a seller enrolls in the program, Amazon will automatically handle all buyer sales tax exemptions. Specifically, the company will collect and store all buyer exemption documents, on a per order basis. And, Amazon tax exempt sellers can access this information through their Tax Document Libraries anytime they need it.
Additionally, Amazon’s tax exemption program helps sellers who want to be tax exempt themselves. When enrolled in the program, Amazon will automatically provide your tax exempt certificate for purchases from other Amazon sellers. This further reduces your administrative burden as a seller – while saving you money. When you purchase inventory from participating ATEP members, Amazon will automatically provide them your exempt certificates.
By becoming Amazon tax exempt, sellers save a ton of time and administrative effort. Rather than collecting tax exempt certificates from every buyer, Amazon does it automatically. When purchasing inventory, you also won’t need to manually provide your own certificates to fellow ATEP members. This lets Amazon tax exempt sellers focus on what matters – making sales.
Am I Eligible for Amazon Tax Exemption?
For buyers, Amazon currently accepts a number of tax exemption types in ATEP. The company provides the full list of buyer tax exemption codes here, but here are the major categories. Of note, most Amazon tax exempt sellers will qualify for tax exemption as resellers (“RESALE” buyer exemption code in Amazon).
- Certain charitable organizations
- US Government
- State and local governments
- Direct payment holders
- Educational institutions
Amazon sellers qualify, and are enrolled in, ATEP by default. When they save their tax settings, Amazon automatically enrolls them unless they choose to opt out of the program.
When enrolled Amazon buyers purchase from participating sellers, Amazon will automatically apply the sales tax exemption. However, this exemption depends on the destination of the order. That is, exemptions are specific to the taxing authority set up in the buyer’s account. For the exemption to apply, the buyer must have an active exemption for the destination state of the order. If not, the buyer will not be offered an exemption during checkout.
What Would Amazon Tax Exempt Mean for My Business?
Enrolling in the Amazon Tax Exemption Program helps businesses tremendously. For Amazon sellers, two-fold benefits exist.
From a selling perspective, ATEP saves you the administrative headache of collecting individual tax exempt certificates from your customers. Amazon does this automatically for buyers who participate in the program. You also have archived records to easily access if necessary.
From a buying perspective, ATEP saves Amazon sellers time, effort, and money. As a retailer or reseller, you can typically make tax exempt purchases of inventory. Normally, this requires one of two options. You can submit your exemption certificate to every single seller. Alternatively, you can request sales tax refunds after the fact. Both of these options add time and administrative headaches to your business operations. When you enroll in ATEP as a tax exempt buyer, Amazon handles these processes for you.
However, Amazon sellers enrolled in ATEP should heed this warning. Make sure that, when buying goods, you do not apply your tax exemption to personal purchases. These are not tax exempt, and this can lead to trouble with the IRS. As a result, we recommend having two Amazon accounts, a personal one and a business one. Only apply the tax exemption to the business one, and only make personal purchases from the personal account.
How Do I Enroll in ATEP?
As an Amazon seller, you will automatically be enrolled in ATEP when you save your tax settings. However, as stated, many Amazon sellers qualify for tax exemptions, as well. If you would also like to enroll as a buyer, the company’s Tax Exemption Wizard walks you through the entire process. You’ll need the following information during enrollment:
- Territory/state in which you wish to enroll
- Entity type of your organization
- Organization’s address
- Business’s exemption numbers or exemption form (as required*)
*NOTE: For most states, Amazon can generate the tax exempt certificate for your business. However, some states only allow certificates issued by the taxing authority.
After completing this application process, you’ll need to sign Amazon’s terms and conditions. You should be able to make tax-exempt purchases within 15 minutes. But, some state exemptions can only be issued by the respective taxing authority. If this applies to your business, you will need to upload your state-issued certificate. Amazon Customer Service will review your application and e-mail enrollment confirmation within 24 hours.
Enrolling in ATEP has an indirect marketing benefit, as well. As an Amazon seller, you receive a seller badge next to your profile name. This is a mark of authority to potential customers. However, to keep this badge, you must meet certain Amazon-imposed requirements. And, one of these requirements is enrolling in ATEP.
Sales Tax Reimbursement
At times, businesses apply for their Amazon Tax Exemption Program status incorrectly. Broadly speaking, two categories of mistakes occur. Either 1) your tax exempt status wasn’t applied when it should have been, or 2) it was applied when it shouldn’t have been. To remedy these mistakes, ATEP members should take one of the following actions:
- Tax exempt status not used when it should have been: If you don’t apply your status to a qualified purchase, you can email Amazon directly for a sales tax refund.
- Tax exempt status applied incorrectly: If you apply your exempt status to a purchase that doesn’t qualify, you will need to pay a use tax on that item.
What To Remember: Amazon Tax Exempt
Amazon Tax Exemption Program is an outstanding opportunity for Amazon sellers, both in their selling and buying capacities. As sellers, ATEP saves you the headache of collecting every tax exempt buyer’s certificates. As buyers, ATEP automatically applies your tax exempt status to qualifying purchases, saving you time and unnecessary sales tax. Bottom line, if you’re an Amazon seller and buy goods for resale via Amazon, you should participate in ATEP. It saves you time, money, and administrative burden.
While dealing with sales taxes seems like a daunting challenge for Amazon sellers, it doesn’t need to be. At Tax Hack, we live and breathe sales taxes for Amazon business, so contact us to set up a sales tax strategy session!