Although you may be eager to join the ranks of other successful Amazon sellers, there are a few important things you have to do. One of them is ensuring you have all the tax information and documents you need to purchase items and make an income through Amazon.
In this article, we’ll answer your question “Do I Need a Tax ID to Sell on Amazon”? But we won’t stop there. We’ll also cover everything you need to know about business licenses and tax IDs.
If you’re ready to launch your entrepreneurial career and start an Amazon seller business, here’s what you need to know before you get sell through your online business.
The Short Answer
Yes, you do need a tax ID to become a seller online with an Amazon selling account. Regardless of whether you sell millions or only make a few dollars, any business that earns an income through their Amazon seller account needs to have the proper tax information and documentation.
Why? Amazon needs to identify and separate sellers. A tax ID helps protect both buyers and sellers by preventing duplicate accounts used to corner the market or gain an unfair advantage online. Without this requirement, selling would essentially turn into a free-for-all.
Additionally, Amazon answers to the Internal Revenue Service (IRS) each year when tax season rolls around. Amazon is required to disclose the entirety of its sales numbers to the IRS. If the numbers don’t match up with the income figures reported by the company’s online sellers, they must investigate the issue.
Thus, Amazon requires all of its sellers to provide an EIN to report the sales of their accounts to the IRS each year.
Finally, there’s also the issue of U.S. Customs and Border Patrol. CBP requires these identification numbers to correctly process all imports and exports and ensure the products you sell reach their respective Amazon warehouse promptly
If you’re a new seller, you might be wondering about the details of setting up a tax ID and other details such as a business license or sales tax ID. We’re covering all that and more below.
Do I Need an EIN to sell on Amazon?
An employer identification number (EIN), also known as a Federal Tax Identification Number, is assigned to businesses after they register and contains nine digits. It has a different format from an individual’s social security number, making it stand apart. This number is what you’ll use to report your taxes to the IRS each year in April.
If you earn more than 600 dollars from your Amazon seller account, you must register for an EIN. Some people have questions, unsure if their status as a sole proprietor exempts them from this constraint. It does not—unless you do not have any employees.
If you are a sole proprietor with no employees, you don’t have to obtain an EIN to sell on Amazon. In this case, you can simply use your SSN.
What’s the difference between SSN and EIN? EIN is for business entities, while an SSN is for individuals or can be used for a single-member LLC or a sole proprietorship.
To obtain an EIN, you’ll need to use your social security number or ITIN. Once you sign up for your Amazon selling account and online business, you’ll be prompted to move through a tax interview through the Amazon Seller Central. You’ll need to prove your identity, so have your EIN or SSN ready to go during this portion.
What about the sellers who are based in the UK rather than the U.S.?
UK individuals who want to sell on Amazon will need to become VAT registered to makes sales through Amazon. Note that this is only a requirement for those who make more than £85,000 in total sales.
Another thing to note is that if you’re selling internationally with UK-based inventory, you’ll need to register for VAT as well.
Registering for a Tax ID: What Documents Do I Need?
Whether you’re a sole proprietor or have formed an LLC, the process to register for a business tax ID is different for those in the United States and those in the UK.
You’ll face different tax requirements as well as the application form you’ll need to fill out.
U.S. Amazon Sellers
If you are an American seller who needs to start the application process to obtain an EIN, here’s what you need to do:
- First, visit the IRS website to view IRS regulations and requirements and determine your eligibility. Are you located in the United States or US territory? Then you can register for an EIN with your SSN or ITIN.
- Before you get into your application process, be sure that you have all the documents and information on hand, as you’re only allowed one session to complete the entire report. If you’re inactive for more than 15 minutes, it will automatically require you to start back at the beginning of the process again. You’ll need to provide information about you, the legal owner of the online business, and the business itself.
- Finally, you can submit and file your information. The best part? It’s free! You’ll immediately receive your EIN if everything you input looks correct. From there, you can choose to email the confirmation to yourself or print it to keep a hard copy on file.
You can then use this information to either form an LLC or corporation or create a sole proprietorship doing business as (DBA) a company and file your federal taxes each year.
UK Amazon Sellers
While you don’t need an American tax ID because you won’t report income to the IRS, you still have to register for a VAT document as a UK Amazon seller.
Start by visiting Gov.UK to begin your application on their website. You’ll begin by creating a Government Gateway account that you can then use to file your VAT tax returns to HM Revenue and Customs annually.
There’s a chance you’ll run into one of the rarer instances when an online application won’t work:
- Applying for a registration exception
- Joining Agricultural Flat Rate Scheme
- Registering different business departments with separate VAT numbers
If any of these instances are the case, you’ll need to register for the VAT document with a printed-out form via mail rather than submit via email or online. Once they’ve returned your VAT number via post, you can then create an online account to make it easier to submit your sales tax returns.
Whether you choose to use the online or post method, you’ll need to provide information regarding your business bank account, turnover, and details of your Amazon business.
Then, just wait for your certificate to arrive, typically within 30 days.
Do I Need a Business License?
It’s common to wonder if you need a business license to sell on Amazon and collect business income. While it’s easy to assume that everyone has to have a business license for Amazon sales, it only applies to products that the federal government regulates.
Most online goods that Amazon accounts sell are just consumer products, so you don’t need the government’s approval, and thus, you don’t need a business license – at least not a federal business license.
However, you must apply for a federal business license if you’re selling in any of the following business categories:
- Alcohol or tobacco
- Maritime transportaion
- Firearms, ammunition, explosives
- radio or TV broadcasting
- nuclear energy
We haven’t even touched on a state or local business license yet.
You’ll have to check with the state where you live to determine whether you need to get a state business license. Some of the activities and services that state governments regulate include:
- Restaurants and bars
- Food Production
The same goes for a local business license — to be sure, you’ll need to check with your local jurisdiction where you plan to sell from.
It’s also a good idea to meet with a professional advisor like an accountant. An accountant service will give you advice tailored to you and your personal business circumstances rather than generally speaking to Amazon sellers.
While some people who sell may be able to get away without the proper state, federal, or local licenses, there’s always a chance of something going wrong. Most professionals will offer advice to get registered for any licenses you may need to avoid having to pay fees or even a lawsuit.
Do I Need a Sales Tax ID or Permit to sell on Amazon?
This is a tricky part to answer, as most questions within the realm of sales tax aren’t fortunate enough to have a simple answer. While the federal government doesn’t collect sales tax, most states do. In fact, there are 45 states plus Washington, D.C. that all require sales tax, and they all have their own rules about these taxes and how someone can collect sales tax.
In the United States, a general rule is that while services like a haircut are not taxable, most products require the seller to pay taxes on the transactions at the time of purchase. Generally, it’s safe to assume that you should set up a state sales tax permit to avoid any trouble down the line with your state.
When you go to set up your sales taxes in Seller Central, go to the taxes collection dashboard and identify your business sales tax permit information for your home state and any additional states, if necessary.
Later down the road, if you decide to join Fulfillment by Amazon and ship your products to one or more of their Amazon fulfillment centers, you’ll likely also need to complete your sales tax permit for those states.
Final Thoughts: How to Start Selling Today
Unless you’re selling a service, you must have a tax ID number, a business license, and a sales tax ID to get set up selling on Amazon.
While the requirements may vary based on the type of business you’ve created, the types of products you sell, and where you’re located, it’s critical you do your research to ensure you have personal protection in case your income figures don’t match Amazon’s when it’s time to file taxes.
Disclaimer: Infinite FBA do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.