Amazon FBA and Sales Tax Nexus: Just the FAQs
- May 4, 2016 | Laura McCamy
Fulfillment by Amazon, commonly known as FBA, has many benefits for sellers: free shipping for Prime members and access to Amazon’s robust logistics system, for starters. Perhaps the biggest plus is the chance to take shipping off your plate and focus your attention on the million and one other things that keep your ecommerce business running smoothly.
But the service can have unintended consequences as well. The big one: Amazon FBA and sales tax nexus. It pays to educate yourself so you don’t end up with tax surprises -- and penalties.
Here are answers to some FAQs about Amazon FBA and sales tax nexus.
What is sales tax nexus?
Nexus is a term that refers to a presence in a state that triggers the responsibility to collect and pay that state’s sales taxes. In the days when brick-and-mortar stores were king, nexus was simple: You paid sales taxes in the state where your store was located.
In the ecommerce era, nexus is a bit more complex. You have nexus in any states where you have a physical presence, such as a store, office, or warehouse, even if those are different than the state where you are based. You need to charge sales tax on your orders you ship to customers in any states where you have sales tax nexus.
What about Amazon FBA and sales tax nexus?
Nexus via warehouse is where Amazon FBA comes in. If you are based in Texas and Amazon FBA stores some of your products in a warehouse in California, you now have a physical presence in California. It’s time to register with the State of California and collect sales tax on the orders you send to California residents.
Where does Amazon FBA have warehouses?
Amazon currently has warehouses in 28 states. You can find the complete list here. Three of those states -- Oregon, New Hampshire, and Delaware -- have no sales tax. So that’s 25 states in which you could potentially have sales tax nexus.
Do I have to register and collect sales taxes in all FBA states?
No. You only need to collect sales tax in the states where Amazon has warehoused your products. That’s the good news. The bad news about Amazon FBA and sales taxes is that Amazon may move your items to different warehouses without telling you. It isn’t always easy to tell where they are.
Check the fulfillment reports provided by Amazon to see where your inventory is warehoused and stay on top of your sales tax compliance.
What happens if I ignore this?
It’s certainly tempting to stick your head in the sand and ignore the potential headaches that Amazon FBA and sales tax nexus can create. Amazon will collect sales tax for you, but there’s a service fee and you have to be a Marketplace Professional to use this service.
So what happens if you just do nothing? At first, probably nothing. Over time, however, and especially if your sales volume grows, the tax collectors from Amazon FBA states may come looking for you.
If you do get audited, you will owe not only the sales taxes you didn’t collect but also interest and penalties. For very small businesses, this might be a calculated risk worth taking. After all, penalties and interest on a tiny amount of sales tax isn’t going to add up to much.
If your business takes off, however, you could suddenly get caught with a big tax liability. With sales tax compliance software to reduce the burden, you might want to find out where your Amazon FBA and sales tax nexus intersect and start collecting sales tax from your customers sooner rather than later.