If you‘re considering signing up for Amazon Prime, you may be wondering: does Amazon Prime charge tax on top of the annual membership fee? The answer is: it depends on where you live.
In this comprehensive guide, we‘ll break down everything you need to know about Amazon Prime and sales tax. You‘ll learn which states are required to pay tax on their Prime memberships, how much it costs, and some potential ways to avoid those pesky sales tax charges. Let‘s dive in!
What is Amazon Prime?
First, a quick overview for the uninitiated. Amazon Prime is a paid subscription service provided by Amazon that gives members access to a wide range of benefits, including:
- Free 2-day shipping on eligible purchases
- Access to Prime Video streaming
- Free access to Amazon Music
- Unlimited photo storage with Amazon Photos
- Early access to select Lightning Deals
- Free grocery delivery from Whole Foods in select cities
The regular price for Amazon Prime is $119 per year or $12.99 per month. For many frequent Amazon shoppers, the free expedited shipping alone makes a Prime membership worthwhile. But what about sales tax – does that cost extra on top of the subscription fee?
A Brief Explainer on Online Sales Tax
To understand Amazon Prime and sales tax, it‘s helpful to know how sales tax works for online purchases in general. In the U.S., 45 states and Washington D.C. collect statewide sales tax. States can only require an online business to collect sales tax if that business has a physical presence (known as "nexus") in the state.
For many years, Amazon only collected sales tax in a handful of states where it had warehouses or offices. However, as the company has expanded its physical footprint across the country, it has gradually started charging sales tax in more and more states.
Currently, Amazon collects sales tax on orders shipped to all 45 states that have a statewide sales tax, as well as Washington D.C. The only states that don‘t pay sales tax on Amazon purchases are:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
So what does this mean for Amazon Prime members? Let‘s take a closer look.
Which States Charge Sales Tax on Amazon Prime?
According to Amazon‘s website, the company currently charges sales tax on Amazon Prime memberships in 21 states:
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- District of Columbia
- Georgia
- Hawaii
- Illinois
- Indiana
- Kentucky
- Maryland
- Massachusetts
- Michigan
- Minnesota
- New Jersey
- New York
- North Carolina
- Ohio
- Pennsylvania
- Tennessee
- Texas
- Virginia
- Washington
- West Virginia
- Wisconsin
If you live in one of these states, you can expect to pay sales tax on your Amazon Prime membership fee. But how exactly does Amazon calculate these taxes?
How Amazon Calculates Sales Tax on Prime Memberships
The amount of sales tax charged on an Amazon Prime membership can vary significantly from state to state. That‘s because each state sets its own sales tax rate, and some local jurisdictions can tack on additional taxes on top of that.
For example, in California, the statewide sales tax rate is 7.25%. However, many cities and counties add their own local sales taxes, which can bring the total rate up to 10.5% in some areas. So if you live in a high-tax area of California, you could end up paying around $12 in sales tax on top of the $119 annual Prime fee.
To see the exact amount of tax you‘ll be charged, you can refer to the tax table on Amazon‘s website, which breaks down the rates for each state. Keep in mind that these rates are subject to change, so it‘s always a good idea to double check before signing up for a Prime membership.
How Much Does Amazon Prime Cost with Tax Included?
So how much will you actually end up paying for Amazon Prime once sales tax is factored in? Let‘s look at a few examples.
Say you live in New Jersey, which has a statewide sales tax rate of 6.625%. Here‘s how your Prime membership fee would break down:
Annual Prime membership fee: $119
New Jersey sales tax (6.625%): $7.88
Total cost with tax: $126.88
Now let‘s consider a more expensive scenario. If you live in Memphis, Tennessee, which has the highest combined state and local sales tax rate in the country at 9.55%, your total cost would be:
Annual Prime membership fee: $119
Memphis, TN sales tax (9.55%): $11.36
Total cost with tax: $130.36
As you can see, the amount of sales tax charged on a Prime membership can range from less than $10 to over $20, depending on where you live. It‘s not a huge added expense in most cases, but it‘s still something to be aware of before signing up.
Why Does Amazon Charge Sales Tax on Prime?
So why does Amazon charge sales tax on Prime memberships in some states but not others? The simple answer is that they‘re just following the law.
As mentioned earlier, states can only require businesses to collect sales tax if they have a physical presence or "nexus" in that state. For many years, Amazon didn‘t have a nexus in most states, so it wasn‘t required to collect sales tax on purchases.
However, as Amazon has expanded its network of warehouses and fulfillment centers across the country, it has established a physical presence in more and more states. As a result, it is now legally obligated to collect sales tax on purchases (including Prime memberships) in those states.
It‘s worth noting that Amazon isn‘t the only company that charges sales tax on subscription services. Other popular services like Netflix, Hulu, and Spotify also charge sales tax in certain states, depending on their nexus and the specific state laws.
Can You Avoid Paying Sales Tax on Amazon Prime?
If you‘re looking to avoid paying sales tax on your Amazon Prime membership, there are a few potential options to consider:
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Live in a state that doesn‘t charge sales tax on Prime. As mentioned above, there are currently five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) that don‘t have a statewide sales tax, so residents of those states don‘t pay tax on their Prime memberships.
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Use an Amazon Prime free trial. If you‘re a new Prime member, you can sign up for a 30-day free trial of the service. During this trial period, you won‘t be charged any sales tax, even if you live in a state that normally charges it on Prime memberships.
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Buy Amazon gift cards. In some states, the purchase of gift cards is exempt from sales tax. So if you buy an Amazon gift card and use it to pay for your Prime membership, you may be able to avoid paying sales tax on the transaction. However, this loophole doesn‘t work in all states, so be sure to check your local laws before trying it.
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Use a business account. If you have a valid business license, you may be able to sign up for an Amazon Business account and get tax-exempt status on your purchases. However, this option is only available to legitimate businesses, and you‘ll need to provide documentation to prove your tax-exempt status.
Keep in mind that these options may not work for everyone, and some of them may only provide a temporary respite from sales tax. Ultimately, if you live in a state that charges sales tax on Amazon Prime, you‘ll probably have to pay it at some point.
The Bottom Line
So, does Amazon Prime charge tax? The answer is yes, but only in certain states. If you live in one of the 21 states (plus Washington D.C.) that collect sales tax on digital services, you can expect to pay a few extra dollars in tax on top of your annual Prime membership fee.
The exact amount of tax you‘ll pay depends on your state and local sales tax rates, but it generally ranges from around $5 to $15 per year. While it‘s not a huge added cost, it‘s still something to factor into your budget when deciding whether an Amazon Prime membership is worth it for you.
If you‘re looking to avoid paying sales tax on your Prime membership, there are a few potential workarounds, like living in a state with no sales tax or using an Amazon gift card to pay for your subscription. However, these options may not be practical or feasible for everyone.
At the end of the day, sales tax is just a reality of online shopping in most parts of the country. While it may be annoying to pay a few extra bucks on top of your Prime membership fee, it‘s a small price to pay for the convenience and perks that come with being an Amazon Prime member.
