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Registering Your Ecommerce Business in Amazon FBA States

  • Apr 20, 2016 | Stephanie Faris

Fulfillment by Amazon (FBA) has made it easier for small business owners to compete with big-box retailers, getting products to Amazon Prime members within a couple of days of purchase. For online retailers, FBA offers access to professional shipping processes at a rate they can afford.

But FBA has brought a major complication to retailers that do business in multiple states. Under various local laws, ecommerce sellers aren’t required to pay sales tax on items they ship to a state unless they have a physical presence there. Defined as nexus, a physical presence includes an office, warehouse, or fulfillment center, among other qualifications, which vary from state to state. FBA has fulfillment centers in numerous states and in at least 11 of those states, governments have determined that use of FBA constitutes nexus for retailers.

If you do business in one of those 11 states and you use FBA, you’ll need to register your business to collect sales tax in each of those states. Here are a few things you’ll need to know to get started.

Understand Your Responsibility

Changes in tax requirements can sneak up on you. Unless you have a professional accountant advising you on your responsibilities, you may not even realize you suddenly owe taxes when you didn’t before. Failure to pay those taxes could result in hefty fines and penalties several years from now, when a state auditor determines your business has been making sales in a state without paying taxes on the money you’ve made.

It’s important to watch nexus tax laws as they apply to the states where you do business and register to collect all applicable sales and local taxes in the areas where Amazon has fulfillment centers. Legally you’re required to pay sales tax on every dollar you earn from a customer in a state. However, in some cases you may find that your sales are so low that the amount of time and expense you’d put into registering, tracking, and submitting your sales tax make it worth the risk of skipping it.

For instance, if you’re selling less than $100 a year in Florida, a state where an FBA center is located, you may find that the effort you’d put into registering and collecting isn’t worth the small amount in penalties you’d have to pay if you were audited. Over time, however, your sales in that area may increase, making it worth it to reexamine sales figures every year.

Registering to Collect

Most states require that you have a business permit before you can register to collect taxes. Often this can be accomplished through an online application at minimal expense. Once you have this, you’ll be ready to register for a state business tax license.

To register, you’ll need information on your business, as well as an NAICS code that matches your business type. You may also need a Federal Employer Identification Number (FEIN) and information on yourself, your business partners, and your employees.

Once you’ve completed the registration process, you’ll have to track your sales for each state. If your software doesn’t calculate and remit payment for you, you’ll need to track the information and submit it through the state’s income tax portal. You'll be responsible for filing monthly, quarterly, or annually, depending on the schedule stipulated at the time you applied for your business tax license.

Collecting sales tax can be complicated, especially when a business has nexus in multiple states. By determining which states require sales tax on your purchases and registering to collect those taxes, you’ll be taking important first steps toward making sure your business is compliant.

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
Stephanie Faris
Avalara Author Stephanie Faris