Introduction to Taxes
This article is 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: Taxes on amazon can be complicated and it's important you learn your responsibilities regarding sales taxes Getting tax advice from a trusted professional adviser is recommended. This article is not meant to provide advice on tax rules or your compliance responsibilities.
Taxes and Tax Settings
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.
Although there are many factors that impact taxes, there are 3 things that affect how the tax settings will need to be configured in A2X:
- Version of your accounting system,
- Which country your business is located in, and
- Which Amazon market(s) you operate in.
Accounting system and business location by country
Examples: Xero & UK/USA, QuickBooks Online & UK, QuickBooks Online & 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, service, or app can replace detailing each sale to the right tax code so you can simply track the liability in Xero.
Xero System - UK
Since the UK has a flat tax rate system, you can use Xero to calculate VAT on settlements, and thus map to Xero tax rates from A2X Accounts and Taxes page. The basis may be product types, country shipped to, or marketplace depending on your VAT scheme. Please see other articles on Invoices Settings and VAT.
Different versions of QuickBooks Online 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.
Scenario 1: Amazon FBA Seller in the UK using Xero
The Amazon VAT calculation service separates the VAT from sales and revenue in settlements. This makes it difficult to use VAT rates in Xero or QuickBooks Online to calculate VAT on settlements for returns properly.
You can turn off the VAT calculator in Amazon and use another app to send VAT invoices to customers, or if you have one VAT rate, use the work-around in this article: VAT on Sales and the Amazon Calculation Service.
If you have more complex VAT requirements, such as multiple country registrations, or Pan-European FBA stock, seek advice from one of our A2X Experts!
Scenario 2: Amazon Seller in the US using a US version of QuickBooks Online, selling on a UK marketplace and has UK warehousing
In this case, the VAT calculation service in Amazon is helpful. Tax rates cannot be applied to QuickBooks Online-US Version journals as seen here.
VAT due from sales and refunds is passed through as a liability in the settlement journal.
Scenario 3: 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 or with simple VAT schemes, you may be able to apply our workaround.
You will be able to apply tax rates in your Accounts and Taxes mapping that generate returns in QuickBooks.
Scenario 4: 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 Selling Multiple States:
Sales tax returns for multiple states can be handled by a knowledgeable accountant or by a sales tax app such as TaxJar, Avalara, and many others.
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.
India and Japan Taxes:
The application of India's tax system to Amazon.in is similar to North America as there are many levels of tax based on locality.
The application of Japan's tax system to Amazon Japan is similar to the UK with its flat rate system.
Questions or comments? Please contact us at email@example.com.