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Amazon’s Fulfillment Center Expansion: Sales Tax Side Effects

  • Mar 25, 2014 | Gail Cole

 Amazon fulfillment center in Fife, Scotland.

In 2013, Amazon.com announced plans to build nine new fulfillment centers across the United States. Earlier this month, the company revealed it will build a fourth fulfillment center in its home state of Washington. This rapid expansion is integral to the online retailer’s mission to be “Earth’s most customer-centric company.”

Amazon’s goal is to be able to deliver items to all customers on the same day, and preserve customer trust with low prices. “The more centers it constructs, the closer the customer and the faster the delivery.” And if same day delivery seems exciting, what about delivery by drone? It may seem like science fiction now, but Amazon founder and CEO Jeff Bezos thinks it is a future reality.

Side-effects of expansion

Growth comes with growing pains. Amazon’s name is often linked to the phrases “online sales tax” and “internet sales tax.” Indeed, the company has so influenced the discussion of online sales tax that the phrase “Amazon tax” has been coined. But if the world’s largest internet seller first embraced a strategy of sales tax avoidance, it has since thrown its support behind a federal solution to internet sales tax. (Note: the company still avoids sales tax when it can, and has severed ties to affiliate sellers in states like Maine and Missouri in order to avoid a sales tax obligation.)

When Amazon creates a fulfillment center (or any other physical presence) in a state where it formerly had no presence, it triggers a sales tax obligation in that state. For example, in November 2013, Amazon started collecting sales tax in Connecticut, Massachusetts and Wisconsin for just that reason.

Sometimes states reach an agreement with the company, delaying the collection start date in exchange for the jobs the company brings to the state. Case in point: although the company’s first fulfillment center in Indiana opened in 2008, the company did not begin collecting sales tax in the Hoosier State until January 2014.

Hello sales tax

The sales tax implications of Amazon’s expansion into new states do not merely reach Amazon itself. Sellers who use Amazon Seller Central or Fulfillment by Amazon services may suddenly find themselves with an obligation to collect sales tax in a variety of states. And collecting in a state means collecting in all localities in those states where sales are made.

Expanding through Amazon: Seller Central and Fulfillment by Amazon

Amazon’s Seller Central programs allow small sellers to put “products in front of tens of millions of Amazon shoppers.” Both individuals and businesses may sell through Amazon with no “per-item” fees. Sellers may ship products themselves, or use Amazon’s fulfillment program.

Using Fulfillment by Amazon (FBA) enables sellers to take advantage of Amazon’s vast network of warehouses and fulfillment centers. Products may be stored and orders fulfilled around the country, enabling a fast delivery time. In addition, FBA participants benefit from the company’s customer service and returns programs.

Participation in Seller Central and Fulfillment by Amazon programs allow companies to scale more easily. The more sales a company makes, the more likely that business is to trigger a sales tax obligation in multiple states. In other words, a small business owner in New Hampshire may suddenly find himself obligated to collect sales tax in ten different towns in Wisconsin. Success is delicious, but it usually comes with a price.

As of this writing, future Amazon fulfillment centers are planned for:

Do you use Amazon’s Seller Central or Fulfillment by Amazon programs? Do you know where you have a sales tax obligation?

Get sales tax right while growing your business. Take the stress out of electronic sales tax filing.

photo credit: Scottish Government via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.