10 Sales Tax Questions Every FBA Seller Should Understand
- Apr 15, 2015 | Ryan O'Donnell
Selling on Amazon is an obvious first step for any online retailer who wants mass exposure. It's also possible to have Amazon manage your inventory for you through the Fulfillment by Amazon (FBA) program. Enroll and Amazon will store, pack, and ship your goods for you. Say goodbye to the days of fulfilling orders yourself!
This service does not come without some added complexity to your business. Sales tax exposure, in particular, is immediately affected. In this post, we cover eight key questions Amazon sellers enrolled in FBA should understand in order to properly manage their sales tax exposure.
1. What will happen if I don’t collect sales tax in states other than my home state?
If you don’t collect the tax from your customer as required, then you are on the hook for it. Local and state taxing authorities have the legal authority to make you pay it. And, to add insult to injury, states can assess penalties and interest on top of owed taxes.
2. How do I know in which states I’m required to collect sales tax?
Here’s where it gets tricky. If you meet one or more of the following criteria, it is likely you should collect sales tax from your customers in the state in which they are located.
- Nexus – You have more than a slight physical presence in the state (such as a warehouse, distribution center, or employee in the state);
- Product and service taxability – What you sell is subject to sales tax in that state (not a tax-exempt item); and
- Materiality – The amount of tax would be material to your business (this will depend on your overall risk tolerance).
3. What does it mean to be an FBA seller with nexus?
As mentioned, having nexus means having more than a slight physical presence in a state. For more FBA sellers, this is triggered by having inventory in an Amazon fulfillment center. As such, the easiest way to determine if you have nexus is to review where you have inventory being stored with Amazon. There are many FBA fulfillment centers in states that collect sales tax and the numbers grow every day.
4. How do I know if what I’m selling is subject to sales tax?
Most states tax all tangible personal property. Most items sold through FBA fit this category and are typically taxable. If you have any question, consult an accounting professional or review tax-exempt items on the appropriate state website.
5. How do I know if the amount of sales tax I collect is so minimal as to negate the requirement by the state?
This is what we refer to as “materiality”. Sometimes, with low volume, the cost to collect and remit the tax exceeds the amount of tax itself. This question boils down to your personal risk tolerance. There is no yes or no answer. Y will need to use your own judgment or ask a trusted tax advisor.
If you have nexus and what you sell is taxable, and you decide the amount of tax to collect is negligible, you may decide not to collect it. However, it is important to remember that risk is never equal to zero.
6. How do I determine in which states my FBA inventory is being stored?
Determining where your FBA inventory is being stored is somewhat tricky. Amazon does not surface this information anywhere within your Seller Central account. Rather, you'll need to download an Amazon Inventory Event Detail report to get this information. Once you have accomplished this, review the "fulfillment-center-id" column to determine where your FBA inventory is being stored. The fulfillment centers are listed according to their ID. Use our FBA warehouse page to get the appropriate addresses.
7. How do I handle sales tax when Amazon moves my inventory to a new fulfillment center?
Since Amazon does not always notify you before it moves your inventory to a new fulfillment center, larger sellers often get registered in all the states where FBA has a fulfillment center on a proactive basis. This allows Amazon to start charging tax from the day the exposure begins. If you choose not to take this approach, just be sure to keep a close eye on where your products are shipping from.
8. In which states does Amazon have fulfillment centers?
In the United States, Amazon currently has fulfillment centers in Arizona, California, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Nevada, New York, New Hampshire, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.
In Canada, fulfillment centers exist in British Columbia and Ontario.
9. How are Amazon sortation centers different than Amazon fulfillment centers?
Sortation centers are a relatively new endeavor for Amazon. They are intended to speed up shipping and, in some states, get products to customers the same day. Inventory is not stored in sortation centers. Rather, purchased goods are processed in sortation centers. This gives Amazon better overall control of the shipping pipeline allowing them to better optimize process and avoid things like holiday congestion experienced by 3rd party sortation services.
10. Do Amazon sortation centers trigger sales tax nexus?
While the role of fulfillment centers is to store sellers' goods until the point of purchase, the role of sortation centers is to handle purchased goods during the shipping stage. In other words, goods in Amazon sortation centers have already been purchased and are no longer owned by the seller. As a result, Amazon sortation centers do not create nexus.