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How Way Too Many FBA Sellers Are Screwing Up

  • Apr 27, 2016 | Katherine Gustafson

Are you an FBA seller who believes you are not screwing up in one important aspect of your business?

If so, can you answer the following question with a resounding and unqualified "YES"?

I am aware that my inventory is creating nexus wherever it is stored, and am therefore collecting and remitting sales taxes on all sales in those states.

If you're shouting "Yes!" right now, then congrats, you can go read something else, or play video games, or whatever.

If you're going "Huh? What's nexus?" Or, worse, "I'm supposed to collect sales taxes?", then please, I beg you, read on.

Are You Out of Compliance?

James Thomson, cofounder of the PROSPER Show, the premier conference about selling on Amazon, tells us that way too many Amazon sellers are out of compliance on their sales tax responsibilities.

This means they're running their business in a way that could create large liabilities. For FBA sellers, the situation is even more complex, the risks even more present.

What's Nexus?

Let's start by unpacking nexus. Nexus is the status of having a connection to a state so substantial that you're required to collect sales taxes on sales you make to people there.

You create nexus by living in a state, having an office, maintaining a warehouse, or keeping an employee. You also likely have nexus in any state where one of your affiliates lives. There are other ways of creating nexus, but each state has its own rules so you have to research each separately.

Your FBA Inventory Is Creating Nexus

One of the less obvious ways of establishing nexus is having your inventory stored in an Amazon fulfillment center in a particular state. Most, if not all, states in which Amazon stores FBA inventory have rules dictating that this storage gives the FBA business nexus there.

That's fairly straightforward, except when Amazon starts moving your inventory around, which can happen so often that it's really hard to keep up. Staying on top of where Amazon is storing your stuff takes a lot of vigilance, but it's necessary to keep an eye on it so you know where you've got nexus.

What To Do Next

Once you have figured out where you have nexus, the next step is to register to collect sales taxes in those states. Collecting taxes without first registering can be seen as fraud, since you'd effectively be posing as an agent of the state without officially declaring yourself one. Registering is usually very easy and more often than not can be done online.

Once you've registered, it's time to start charging your customers in that state sales tax. Check out our handy guide to sales tax collection in Amazon.

Keep good records and maintain a separate account specifically to store money owed to states as taxes. When it comes time to send in the taxes, it can help to use an automated service like Avalara TrustFile to make the process painless.

Congrats, you're in compliance! Now just make sure to stay that way.

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
Katherine Gustafson
Avalara Author Katherine Gustafson