5 Common Questions About FBA
- Mar 10, 2016 | Avalara
Fulfillment by Amazon (FBA) sellers tend to have many of the same sales tax questions, and our goal is to provide simple answers for them. Here are some of the questions we hear most often and our responses.
1. Do FBA sellers have to collect sales tax?
In a word: yes. Simply housing inventory in a state is enough to create what is called a “sales tax nexus” (we discuss this more below). This is true in every state except Virginia. This nearly always means that when you sell through FBA you have to collect sales tax based on the rules of the states where your inventory is located.
2. What is the “sales tax nexus” and do I have it?
A sales tax nexus is present when there is some type of connection between your business and a state. Each state defines nexus a little differently, but the general rule of thumb is that a “physical presence” creates nexus. Physical presence doesn't just mean that your business is located in the state. If your business has an employee, an affiliate, an office location, a warehouse, or even stored inventory in a state, there is probably a physical presence for sales tax purposes.
Obviously this affects FBA users because Amazon may well be storing your inventory in many states. This in turn may trigger both state and local taxes that differ for each location.
Some states have origin-based sales tax; in these states whether or not there is sales tax and how much to charge is based on the location of the seller. However, most states have destination-based sales tax. In destination-based states you charge sales tax based on the location of the buyer. In these states you are responsible for keeping track of your sales and charging the right sales tax, both state and municipal, for each buyer's location.
However, most states treat remote sellers differently. For sales tax purposes in most states "remote" means a seller who has a sales tax nexus in a state even though they are not physically based in that state. A good standard to follow when in doubt is this: If you are a remote seller you will typically charge sales tax based on the location of your buyer.
Here's how it works. Say you are located in Florida and use FBA. Your merchandise is shipped to several different FBA warehouses in multiple states. First, you'll be considered to have nexus in each warehouse state. Second, all but three states treat remote sellers differently than local sellers and apply the destination-based standard to them. Therefore, if you store merchandise via FBA in Illinois, an origin-based state, you will still charge sales tax based on where your buyer is. This is because unless your nexus is in a strict origin-based state you should charge based on your buyer's location.
Arizona, California, and New Mexico are the exceptions to the destination-based rule for remote sellers because they are the three strict origin-based states. If you have merchandise in these three states you will need to charge sales tax based on your (merchandise's) location. California is unique in that it is a modified origin-based state; all city, county, and state taxes are based on the seller's location, but supplementary local taxes or district taxes are based on the buyer's location. For more on the "California exception," see this post.
The bottom line here is that ultimately the burden is on you as the seller to make sure you are calculating sales tax correctly.
3. How do I know where my inventory is?
You can find out where your inventory is by going to Amazon Seller Central and using Amazon Fulfillment reports and your Inventory Event Detail. Look for the “Fulfillment Center ID” column for the nexus locations. They each use the abbreviation of the closest airport; for example, the Phoenix storage facilities are labeled “PHX.”
4. When do I register for a sales tax permit?
If you have nexus in a state, you likely must register for a sales tax permit in that state. It is unlawful to collect sales tax without a permit in many states. Timing is a little more complicated because you can either register in advance to be safe or wait until you need to register--but this only works if you know each time your duty to register is triggered.
You could certainly register in every FBA state as a preemptive measure, but this might be a waste of money for you depending on your business. A less extreme approach is to register in your home state and then take other locations on a state-by-state basis depending on where your inventory is being stored.
5. Can I use Amazon to collect sales tax in other states?
You can collect sales tax via the Amazon platform. Amazon collects sales tax for all fifty states, some local jurisdictions, and Washington, DC. The platform bases sales tax on each item's total selling price, including the shipping, handling, freight, gift-wrapping, and other item-level costs. Amazon also takes buyer location and the type of item sold into account when figuring sales tax.
You must set this up in Seller Central to be sure the calculations are correct. Here is our guide to setting up your account to collect sales tax.