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Sorting out Nexus at Amazon Sortation Centers

  • Apr 23, 2015 | Mark Berens

When it comes to getting items into the hands of its customers, nobody works harder at it than Amazon. However, after recent, challenging holiday seasons of delayed shipments and the issuance of gift cards to appease angry customers, Amazon was forced to take another look at the efficacy of their fifty-nine North American “fulfillment centers”—those one-million-square-foot buildings shown in countless Amazon news stories where “pickers” roam the aisles like a personal shopper to the world, grab glistening items off the shelf, then route them individually to await boxing, addressing, and shipping to every part of the globe—a cool job, but not terribly efficient when done piecemeal.

Logistics: The Hobgoblin of Fulfillment Centers

The downside of their fulfillment centers, Amazon realized, is logistics. Like an airport shuttle that picks up/drops off passengers by neighborhood versus driving randomly all over, wouldn’t it be more efficient, they reasoned, if we could ship A LOT of items that are going to roughly the same location at one time to a centralized spot, versus shipping individual items wherever they need to go? Yes, it would be.

Enter “Sortation Centers”

About a third of the size of an Amazon fulfillment center, Amazon’s eight new sortation centers (in Atlanta, Dallas, Houston, Phoenix, Kent, WA, Avenel, NJ, Hebron, KY, and San Bernardino, CA—with an eye toward having as many as fifty) are strategically located shipping hubs where similarly ZIP-coded parcels arrive en masse for a “last-mile” sprint delivery by U.S. mail (USPS) to their owners. Unlike the flea market vibe of a fulfillment center, it’s all business at a sortation center, where the boxed and labeled packages are loaded onto a conveyor and sorted by ZIP code for delivery to local post offices. In addition, because of its partnership with USPS, Amazon no longer needs to use competitor delivery services (UPS, FedEx, etc.). By inserting their merchandise directly into the postal stream at a postal point—called a Destination Delivery Unit—closest to the customer, they’ve essentially become their own shipping company. In addition (and most critically), because of their partnership agreement, USPS has now delivered millions of Amazon packages on Sunday—a service that UPS does not provide and one that FedEx will do, but for a fee.

Sortation Centers, Fulfillment Centers, and Sales Tax Nexus

So, Amazon’s fulfillment centers improve the old scatter-shot approach of delivery, but for FBA (Fulfillment by Amazon) sellers, their question is, do I have nexus with a state because of these sortation centers? The answer is no. Here’s why:

  • When an FBA seller in State A offers their product on Amazon and someone purchases it online in State B, ownership is legally transferred from the FBA seller to the purchaser at the moment the transaction is completed. The FBA seller no longer owns the inventory.
  • This legal purchase, fulfilled in State A, is then sent to a sortation center in State B or C or X in what’s called the “stream of commerce.” Despite the fact that it’s stopping in a sortation center in another state, it has been decreed that this designed-to-be-brief pit stop isn’t enough to give an Amazon FBA seller sales tax nexus in that state.
  • However, know this: FBA sellers DO have nexus in the states where Amazon warehouses their products prior to fulfillment. Those fulfillment centers will create nexus for FBA sellers, and they’re building and/or planning them all the time. Keep your eyes open.

To be sure, Amazon knows the delivery game but knows there’s still room, even in the face of the huge price tag that comes with building large warehouses, for improvement. But until drones start flying through our neighborhoods, sortation centers are the best way to get Amazon’s goodies (and your goodies as an FBA seller) flying off the shelves, nexus or not.

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.
Avalara Author
Mark Berens
Avalara Author Mark Berens