Where is my Fulfillment by Amazon inventory triggering nexus?
"As part of the Fulfillment by Amazon (FBA) program, does my inventory require me to collect sales tax?"
This is a common question for Amazon sellers.
Yet, the answer continually changes as states and local municipalities revise their tax rules, and the retail behemoth continues to build new warehouses across the country. As of this writing, Amazon reports 185 active fulfillment centers globally and 110 in the U.S. in 35 states, or an estimated 124 million square feet of storage space actively in use. And another 40 million in the works.
Nexus — Yes, or no?
Generally, most states conclude that any inventory stored in their state creates a tax obligation — or nexus, a relationship between your business and a tax jurisdiction that triggers a sales tax collection and remittance obligation.
Some states address inventory directly as a nexus-creating activity but often phrase the details differently — like referring to inventory as “stocks of merchandise” or “stock of goods.” Other states don’t get specific but declare that storing “supplies” in their state creates nexus. Some go broader and state that “using” a warehouse or place of distribution is a nexus-creating activity, or as Florida decrees: Ownership of real or tangible personal property within the state creates nexus.
Texas offers an excellent example of how states often word their guidelines for warehouse use and nexus: If a retailer “maintains, occupies, or uses in this state permanently, temporarily, directly, or indirectly or through a subsidiary or agent by whatever name, an office, distribution center, sales or sample room or place, warehouse, storage place, or any other physical location where business is conducted” (Texas Tax Code Ann. §151.107(a)(1)).
If you’re an FBA program participant, your activities — inventory storage, order processing, picking and packing of inventory, shipping, customer services, and returns management — most likely fall under any of the above proclamations. However, a few states do address fulfillment services directly and deem them taxable. Pennsylvania, for instance, states that “Maintaining inventory in Pennsylvania using a third-party fulfillment service, such as Fulfilled by Amazon,” establishes nexus.
Discovering and understanding your sales tax liabilities can feel daunting, but it is critical for tax compliance and, ultimately, the survival of your business. Amazon sometimes spread your inventory across different fulfillment centers, but the retailer does offer FBA sellers inventory management systems to help you track your products. Once you know where your product is stored, you can begin researching the sales tax nexus parameters of those locations.
But wait, there’s more
There’s another layer to inventory nexus. Not all Amazon warehouses are fulfillment centers. Your product may pass through one of the other types of facilities:
- Crossdock Centers house containers from foreign vendors until supplies run low at fulfillment centers.
- Sortation Centers sort packages by ZIP code and ship them out to U.S. Postal Service locations.
- Delivery Stations are the last stop before the package goes to the customer. Amazon Flex drivers often field these deliveries.
- Prime Now Hubs are smaller facilities that carry out deliveries within two hours of completed order. Currently, Amazon has 50 facilities in urban areas, but that number is anticipated to grow greatly.
- Prime Air Hub is Amazon’s next step closer to its own airport. The 210-acre facility will reduce the seller’s dependency on third-party carriers.
So, determining which type of warehouse facility creates a nexus is strictly based on its location and the guidelines therein and how the hosting state or local municipality defines those functions for sales tax.
But then there’s another catch: Goods stored in an Amazon warehouse are owner agnostic. Here’s an example: You have flip flops stored in an Ohio fulfillment center. Someone from California orders a pair, but Amazon has those flip flops in a closer facility in Los Angeles, Amazon will most likely ship the flip flops from the California center.
Where did you trigger nexus? California or Ohio? Or both?
Don’t get too overwhelmed yet. Just because your products are stored or passing through various Amazon warehouse doesn't mean you must rush out and register your business to collect sales tax in all those states.
Determining if and when you must collect sales tax for your FBA inventory is a complicated task that will continue to exasperate sellers as tax regulations constantly evolve and Amazon continues to add new fulfillment centers. But the company does offer support on sellercentral.amazom.com and sell.amazon.com.
And if you’ve determined you have a new sales tax obligation due to economic nexus laws, Avalara can help you register your business with the jurisdiction.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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