How Amazon Seller Central Merchants Can Remain Compliant with Sales Tax Reporting
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"I like that APPSeCONNECT saves us a lot of time by automating the import of sales orders from Shopify into SAP Business One. It helps in updating business partner contact information, which is great because before we had to hand-type the orders, but now it's all imported smoothly."
Shailendu Verma6 min readIntroduction: The Importance of Sales Tax Compliance
One of the key aspects of doing business on Amazon Seller Central is ensuring compliance with local government rules and regulations. Sales tax is a significant component of this compliance.
In many cases, Amazon collects sales tax on behalf of merchants and remits it directly to the relevant tax authorities.
For offline orders and other sales channels, businesses typically rely on their ERP systems to calculate and accumulate sales tax information. We have seen varying levels of complexity in sales tax calculations depending on the business, its locations, and the applicable regulations.
There are also specialized software solutions, such as Avalara and other tax calculation platforms, that help businesses manage these complexities.
However, how does sales tax reporting change when a merchant starts selling through Amazon Seller Central?
How Amazon Handles Sales Tax Collection
When a customer places an order on Amazon, the applicable sales tax is calculated and clearly displayed during checkout.
In cases where Amazon is responsible for collecting and remitting the tax, it handles this process on behalf of the merchant.
This simplifies tax collection for the merchant, but it introduces an important consideration when integrating Amazon orders with the merchant's ERP system.
The Challenge: Capturing Sales Tax Information in the ERP
When Amazon orders are transferred into an ERP system, we have observed that many merchants are primarily concerned with their accounts receivable from Amazon rather than capturing the complete financial details of each order.
Their focus is understandably on how much Amazon owes them after accounting for various deductions and settlements.
Even when Amazon-collected sales tax is not part of the financial settlement payable to the merchant, maintaining this information in the ERP is important for reporting and compliance purposes.
This means that whenever an Amazon order is transferred into an ERP system, whether as an individual order or as part of a consolidated order, the sales tax collected by Amazon should also be recorded.
The objective is to ensure that the ERP maintains a complete record of the transaction, including the tax amount collected by Amazon, without incorrectly treating that amount as a tax liability payable by the merchant.
How APPSeCONNECT Handles Amazon Sales Tax Reporting
There are several ways to address this requirement, depending on the capabilities and architecture of the ERP system.
Let's consider two widely used ERP solutions and how APPSeCONNECT can help merchants capture Amazon sales tax information.
1. SAP S/4HANA and SAP ECC: Using Statistical Conditions
In SAP S/4HANA and SAP ECC, sales order pricing and calculations are managed through pricing procedures and condition types.
SAP provides a useful capability known as statistical conditions. How this concept is used for recording the tax collected by Amazon is described below.
What Is a Statistical Condition?
A statistical condition is a pricing condition that can retain a value in the sales document for informational or reporting purposes without affecting the net price calculation.
This makes statistical conditions particularly useful for recording sales tax that Amazon has already calculated and collected.
How APPSeCONNECT leverages this for recording Tax
One possible solution is to create a custom statistical condition type (example ZTAX) in SAP.
When APPSeCONNECT transfers an order from Amazon Seller Central into SAP, it can populate this statistical condition with the exact sales tax amount calculated by Amazon internally.
For example:
- Amazon order value: $100.00
- Sales tax collected by Amazon: $21.00
- Statistical condition ZTAX in SAP: $21.00
The ZTAX condition retains the Amazon-collected tax amount for reporting purposes without changing the order's net value.
Comparing Amazon and SAP Sales Tax Calculations
Ideally, the sales tax calculated by the ERP should match the amount collected by Amazon, assuming both systems use the same taxable base and applicable tax rules.
However, minor differences may arise because of calculation methods, rounding, or tax configurations.
Recording Amazon's actual tax amount in the statistical condition allows the business to compare the two values and identify discrepancies.
This provides an additional layer of visibility and control over sales tax reporting.
2. SAP Business One: Two Approaches to Recording Amazon Sales Tax
SAP Business One offers different ways to capture Amazon-collected sales tax information.
Depending on the merchant's accounting requirements and SAP Business One configuration, APPSeCONNECT can support two possible approaches.
Approach 1: Recording Sales Tax Through General Ledger Entries
The first approach involves using a designated general ledger (GL) account or accounting entries to capture the sales tax collected by Amazon.
APPSeCONNECT transfers the sales tax information from Amazon into the appropriate accounting structure within SAP Business One.
This allows the merchant to maintain a financial record of the Amazon-collected tax.
The accounting entries must be configured appropriately so that the tax is recorded for reporting purposes without creating an incorrect tax payable balance or affecting the merchant's actual receivables from Amazon.
Approach 2: Using User-Defined Fields (UDFs)
The second approach involves creating a User-Defined Field (UDF) within SAP Business One.
A dedicated UDF can be configured to store the sales tax amount collected by Amazon.
When an order is synchronized from Amazon Seller Central to SAP Business One, APPSeCONNECT populates this field with the corresponding tax amount.
This provides a relatively straightforward way to retain Amazon’s sales tax information for reference, reconciliation, and reporting.
Unlike the GL-based approach, the UDF primarily serves as a data-recording mechanism rather than a direct accounting entry.
Choosing the Appropriate Approach
The choice between GL entries and UDFs depends on the merchant's reporting requirements, accounting policies, and ERP configuration.
The important consideration is to ensure that Amazon-collected tax remains visible within the ERP without distorting the merchant’s financial statements or creating duplicate tax liabilities.
3. Applying Similar Solutions to Other ERP Systems
Although the examples above focus on SAP S/4HANA, SAP ECC, and SAP Business One, similar solutions can be implemented for other ERP systems.
The exact implementation depends on the capabilities available within the ERP, such as:
- Statistical or informational pricing conditions
- Dedicated accounting entries
- Custom fields for tax reporting
- Other transaction-level reporting mechanisms
An integration platform such as APPSeCONNECT can help map the sales tax information from Amazon Seller Central into the appropriate structure supported by the ERP.
The objective remains the same: maintaining accurate transaction information while supporting the merchant's financial reporting and compliance requirements.
Why Keeping Amazon Sales Tax Information in the ERP Matters
Even when Amazon handles sales tax collection and remittance, the merchant benefits from maintaining the complete transaction details within the ERP.
Doing so helps businesses:
- Maintain a consolidated view of sales transactions across different channels.
- Retain records of sales tax collected by Amazon.
- Support financial reporting and tax-related audits.
- Identify discrepancies between Amazon and ERP tax calculations.
- Improve visibility into Amazon order reconciliation.
Since the ERP is typically the central system for a company's financial information, it is important that relevant Amazon transaction details are also available there.
Conclusion: Simplifying Amazon Tax Reporting with APPSeCONNECT
Read how Kyocera was able to achieve success integrating Amazon Seller Central with SAP.
Selling through Amazon Seller Central offers merchants an opportunity to expand their reach, increase order volumes, and generate additional revenue.
However, operating through an additional sales channel also introduces requirements around financial reconciliation, accurate recordkeeping, and statutory compliance.
While Amazon may collect and remit sales tax on behalf of merchants, businesses should still ensure that this information is appropriately captured within their ERP systems.
Whether through statistical conditions in SAP S/4HANA and SAP ECC, GL entries or UDFs in SAP Business One, or similar capabilities in other ERP platforms, the goal is to maintain complete and reliable financial records.
An integration platform like APPSeCONNECT can greatly simplify this process by automating the movement of Amazon order and tax information into the ERP, reducing manual effort, and supporting the reporting requirements of merchants selling across multiple channels.
Ultimately, a well-integrated ERP and Amazon Seller Central environment helps merchants focus on growing their business while maintaining the financial visibility and controls necessary for compliance.
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Time-Saving Integration with Excellent Support
"I like that APPSeCONNECT saves us a lot of time by automating the import of sales orders from Shopify into SAP Business One. It helps in updating business partner contact information, which is great because before we had to hand-type the orders, but now it's all imported smoothly."
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