Introduction to Taxes
Taxes can be tricky for Amazon sellers, and it's important you learn your responsibilities regarding sales taxes - you should get good tax advice from a trusted professional adviser.
Once you know what taxes you need to collect and account for, A2X can ensure your accounting system is getting the data it needs from Amazon.
In this article we will give an overview and some example scenarios of how to configure tax rates in A2X to ensure the correct tax information is being passed to your accounting system.
Please note: This article is not meant to provide advice on tax rules or your compliance responsibilities.
Although there are many factors that impact taxes, there are 2 main things that affect how the tax settings will need to be configured in A2X:
- Your accounting system and which country your business is located in, and
- Which Amazon market(s) you operate in.
About Accounting system and business location by country
Examples: Xero UK/USA, QBO UK, QBO USA
Xero System - USA
Xero allows you to create sales tax rates for any location, but since you need information like addresses and a whole host of rules that are not available in the Amazon settlement, it is impossible to apply them through A2X mapping. Using a qualified Sales Tax preparer or service can replace detailing each sale to the right tax code and simply track the liability in Xero.
Xero System - UK
The UK has a flat tax rate so you can use Xero to calculate VAT on settlements and thus map to Xero tax rates in A2X. The basis may be product types, country, or marketplace depending on your VAT scheme. Check out our other articles regarding VAT for suggestions on how to map VAT rates in A2X.
Intuit’s different versions of QBO for the UK and USA.
The UK version of QuickBooks Online allows you to set tax rates on journal entries so you can map to tax rates in A2X Accounts and Taxes.
In the US version, it is best to use a qualified app or service to track the sales tax details and simply track the liability in QuickBooks, whatever the marketplace.
Amazon marketplace locations
In the following examples we will be exploring UK/EU, US, and CA marketplaces
Let's look at a few example scenarios by applying the above factors of accounting system and business location by country.
Amazon FBA Seller in the UK using Xero
In this scenario we recommend turning the VAT calculation service off in Amazon, so that you can use VAT rates in A2X that correspond to the VAT rates you need to charge on sales, and are being charged on expenses.
Result: Transaction data from Amazon will arrive in Xero or QBO in a format that make the built-in VAT returns usable.
If you have more complex VAT requirements, such as multiple country registrations, or PanEu FBA stock, the setup will be different. Seek advice from one of our A2X Experts!
Amazon Seller in the US using a US version of QuickBooks Online, selling on a UK marketplace and has UK warehousing
Turn on the VAT calculation service in Amazon. (This is primarily because tax rates cannot be applied to QuickBooks Online-US Version journals.)
Result: You will simply be passing on VAT due from sales and refunds to a line in the settlement journal of the QuickBooks liability account.
Amazon FBA Seller in the UK with a UK marketplace and warehousing using UK version of QuickBooks Online
As we recommended for Xero, you can turn off the VAT calculator service, as the UK version of QuickBooks Online has a place for VAT on journal entries.
You will be able to apply tax rates in your Accounts and Taxes mapping to generate returns from QuickBooks.
In A2X, set VAT rates to Sales, Refunds, Shipping charges, and Amazon fees). QuickBooks will then calculate the rates on those transactions when they import.
Amazon Seller based in North America with a US or Canadian marketplace and using either Xero or QuickBooks Online
North America has Amazon calculate Sales tax, and only the total for each type of tax comes through on the settlements (the details of the sales tax by State or Province does not appear).
Solutions for Multiple States:
Sales tax returns for multiple states can be handled by a knowledgeable accountant or by a sales tax app such as TaxJar or Avalara.
Xero Note: It may be necessary for a tax rate to be set in A2X in order for the settlement to send to Xero.
Use "Tax Exempt" to prevent Xero from calculating tax.
Apply to sales, refunds, shipping charges, and sales tax.
QuickBooks Note: The rate for QuickBooks Online-US version does not need to be set in A2X.
Generating returns from Amazon:
Use an app connected to Amazon, such as TaxJar and Avalara.
Seek advice from one of our Expert A2X Partners about automating returns.
The application of India's tax system to Amazon.in is similar to North America. There are other levels of tax based on locality.
The application of Japan's tax system to Amazon.jp is similar to the UK. Flat rates.
Questions or comments? Please contact us at firstname.lastname@example.org.