Sales Tax Nexus and the Amazon Seller
- July 25, 2015 | Tim Parker
If you're an Amazon seller or you've spent any time in the Amazon Seller Central forums, you know nexus is an ongoing, 'popular' point of conversation. "What is nexus?", "What triggers nexus?", and "When does nexus matter?", are just some of the questions merchants have top of mind. Physical presence isn’t just selling goods and services, it’s employing workers, doing business at a trade show, and even having affiliate marketers in the state.
But what if you conduct all of your business online and most or all of that business is through Amazon? Depending on whether you are participating in Fulfillment by Amazon (FBA), your sales tax responsibilities can change dramatically.
Do I Have Nexus?
Fulfillment By Amazon (FBA) customers are understandably confused about their sales tax obligations and what constitutes creating nexus. If you send inventory to a fulfillment center in a certain state, have you established nexus? Unfortunately, you probably have. We've put together a state-by-state look at the language surrounding sales tax nexus and warehouse usage:
Arizona: "Owning, leasing, using, or maintaining any of the following facilities or property in-state...warehouse." (Link)
Connecticut: On the Connecticut Nexus Declaration Form, question #5 reads, "The corporation maintained a stock of inventory in a public warehouse in Connecticut." (Link)
California: "The retailer maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business in California;" (Link)
Florida: "The dealer owns real property or tangible personal property that is physically in this state, except that a dealer whose only property (including property owned by an affiliate) in this state is located at the premises of a printer with which the vendor has contracted for printing, and is either a final printed product, or property which becomes a part of the final printed product, or property from which the printed product is produced, is not deemed to own such property for purposes of this paragraph;" (Link)
Indiana: "Do you have Indiana inventories?" (Link)
Kansas: "Stocking inventory in a Kansas warehouse or on consignment." (Link)
Maryland: "Maintaining a stock of inventory in a public warehouse or placement of the corporation's inventory in the hands of a distributor or other non-employee representative." (Link)
Massachusetts: "Owning, leasing, maintaining or otherwise using any of the following facilities or property in‑state...warehouse" (Link)
Nevada: No published documentation supporting nexus and warehouse storage
New Jersey: "Have any type of property location in New Jersey (whether owned, leased or rented, real estate, consignments, inventory, merchandise, drop shipments, etc.)? (Link to nexus questionnaire)
Pennsylvania: "Maintaining a stock of goods." (Link)
South Carolina: "The business’ sole activity in South Carolina is maintaining or using a distribution facility." (Link)
Tennessee: "Have any other physical presence in Tennessee." (Link)
Texas: "A seller is engaged in business in this state if the seller: maintains, occupies, or uses in this state, permanently or temporarily, directly or indirectly, or through an agent by whatever name called, a kiosk, office, distribution center, sales or sample room or place, warehouse or storage place, or any other physical location where business is conducted;" (Link)
Virginia: "A dealer shall be deemed to have sufficient activity within the Commonwealth to require registration under §58.1-613 if he: Maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature;" (Link)
Washington: "A few examples of nexus-creating activities include, but are not limited to...Maintaining a stock of goods in this state." (Link)
Wisconsin: "Has this company owned goods in a Wisconsin warehouse, on consignment, or in the hands of a distributor or other non-employee representative in Wisconsin?" (Link to nexus questionnaire)
It should be noted that some states have stronger language around inventory and nexus than others.
Even more interesting is the fact that some of the Amazon FBA states that have laws in place regarding warehouse storage and nexus have no online documentation published (questionnaire or otherwise) supporting this claim. Considering the fact that the internet is the primary location small business owners such as Amazon sellers do their research, this seems like a grand oversight.
If your product is stored in a warehouse in a state outside of your own, you’ve probably established nexus in that state and are subject to its tax laws.
Where's My Inventory?
Once you send your inventory to Amazon, the company may distribute it to other warehouses across the nation to get it to its customers faster. That means that you have suddenly established nexus in all of those states as well. How do you know where Amazon houses your inventory? In your Amazon Pro account, there’s an option under your inventory section that displays the details of your products, including where they’re warehoused. We've outlined the steps for exporting this report to make it easy for you.
Download the report and go to the fulfillment center column. The first three letters of the center correspond to the airport code. Look up the airport code and you know where that center is located. Sound complicated and cumbersome? You’re right, it is, but necessary for understanding your taxing responsibilities.
Should I Take My Chances?
The bottom line is that states are low on cash. Their budgets are skyrocketing and the amount of revenue coming in isn’t keeping up with their bills. They need more money and on
e way to bring in the extra revenue is to tax more. Online retailers are a new stock of taxpayers that can represent significant income.
Because each state has its own tax law, trying to comply with all of them is a monumental task. Some Amazon retailers will choose not to go down this complicated road. Realistically, if you’re a small seller, states aren’t going to go after you if you don’t pay your miniscule tax bill for the handful of small products you sold in their state. But that probably won’t be the case in the future.
First, states will get better at monitoring and collecting what they believe is due to them. Depending on their laws, they could go back multiple years. The IRS can go back three years, but California, for one, has no Statute of Limitations. States could collect tax, plus interest and penalties, years into the future.
Second, as sellers get larger, many will register in all states where Amazon has fulfillment centers as a means of risk management. It will cost a lot more money in time and legal fees to fight your tax liability than it does to pay it in all states, according to Michael J. Fleming of Peisner Johnson & Company, so most will take the simpler and cheaper route.
Amazon sellers, as well as Amazon itself, are very vocal about their frustration with tax laws that are overly complicated and, in their opinion, heavy-handed. With limited guidance from state governments, sellers are left to understand their own situation and make their own decisions. Depending on your tolerance for risk, you may want to get out ahead of nexus by registering in all Amazon FBA states. Many Amazon merchants, however, point to this approach as overkill. It depends on your growth as a seller and desire to avoid any and all audit risk.
As we've said many times on our blog, only you can make this decision. If you're working with a tax professional, consider working together to come up with a plan.