Fees and sales tax considerations for amazon sellers and vendors

Selling products on Amazon can provide immediate impact for companies looking to expand their sales and increase their market presence. Amazon provides consumers with a trusted platform to purchase products, bringing in $59.7 billion for the quarter ending March 31, 2019, alone. However, without careful planning, it’s easy to be surprised by fees and potential sales tax implications of doing business with Amazon.

There are two distinct business models for sellers on Amazon: the seller central platform and vendor central platform, with some key differences between the two. It’s critical to understand the associated fees and sales-tax requirements associated with each and how to properly accounting for them.

Here’s what companies need to know.

Vendor central

The vendor central platform requires sellers to negotiate their sales price to Amazon, which then purchases and holds title to the product, warehouses the inventory, and ultimately resells it to the end consumer.

Sellers using this method frequently see sales recognized sooner, and they don’t have to hold the inventory until the end consumer makes their purchase. Also, because the seller isn’t responsible for inventory, they generally don’t have to worry about the potential sales tax implications of holding inventory in multiple states. However, there are many additional factors to consider, including collecting and maintaining resale certificates and documentation to demonstrate the wholesale nature of sales to Amazon.

Choosing the vendor central option means sellers lose the ability to set pricing for end consumers, which can create conflicts with other retailers selling the same products at higher prices. Additionally, sellers could be subject to large shipment swings, resulting from Amazon’s buying patterns as it builds inventories for seasonal products.

Fee reporting

Vendors are subject to many fees as part of their selling agreement with Amazon. Up to 35% of the sales price paid by Amazon can be delegated to Amazon’s cooperative advertising, subscribe and save, daily deals, and return and allowance charges. Vendors can also pay Amazon to handle their freight in exchange for a freight allowance or Amazon Consulting and Marketing for additional product support, which is charged at a per-use rate.

Amazon’s fee-paying system, Amazon Deduct, makes paying fees fairly easy through automatically calculating fees as a percentage of sales price. However, accounting for these fees by Amazon’s vendors on their income statements can be more challenging. According to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605, sales incentives should be a function of the selling price unless they provide a separately identifiable benefit at fair value that can be purchased independently of the sale transaction.