What Do States Say About Amazon FBA and Sales Tax?
- May 6, 2016 | Laura McCamy
Many sellers and consumers think of online retail as a tax-free zone. This is changing, as states put laws in place to try to plug the ecommerce sales tax holes and bring some of those retail sales tax dollars back home.
It may seem that Amazon FBA and sales tax have nothing to do with each other, but new laws in FBA states link the two together.
The Quill Conundrum
The decision in the case of Quill vs. North Dakota, which went all the way to the Supreme Court in 1992, set the definition of nexus that stands to this day. Nexus is a physical presence in a state. Nexus is also what businesses must have before states can require them to charge sales tax.
Quill limits states’ ability to collect taxes on remote sales. If you sell bunny slippers from a business based in Boca Raton, you have to add sales tax to the orders you send to customers in Florida, but you can ship tax-free to customers in the 49 other states if you have no nexus in any of them.
As the Internet booms, states have found creative ways around Quill with more expansive definitions of what can create physical nexus, including click-through nexus. Some of these laws are referred to as “Amazon” laws, since Amazon is the biggest player in online retail.
Amazon FBA and Sales Tax Nexus
When you use Amazon FBA, you ship inventory to Amazon, which then stores it in one of its (currently) 28 warehouses around the US. Amazon decides where to warehouse your products and may move your inventory from one fulfillment center to another.
Every time your inventory moves to a new state, storing your stuff in an Amazon FBA warehouse there creates sales tax nexus in that state (unless it's in one of their warehouses in three states with no sales tax). You are now obligated to register with that state to collect and pay sales taxes.
25 States and Amazon FBA and Sales Tax, Oh My!
If you’re like most FBA sellers, you’re probably now calculating how many orders Amazon might have shipped for you from the fulfillment center in New York or Florida or Michigan. If it was just a few, the state probably doesn’t care, right? Wrong.
States have lost a lot of sales tax revenue to ecommerce and they are desperate to get it back. That’s why states with Amazon warehouses have sales tax laws that say that those warehouses create nexus.
Some examples of Amazon FBA and sales tax laws:
- In Florida, if “[t]he dealer owns real property or tangible personal property that is physically in this state,” they have FL sales tax nexus.
- In California, one who “occupies, or uses, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place” has CA sales tax nexus.
- In Texas, everyone has nexus who “maintains, occupies, or uses in this state, permanently or temporarily, directly or indirectly, or through an agent by whatever name called, a…distribution center…”
These laws were originally aimed at Amazon itself, since the ecommerce heavyweight has become the one-stop shopping center of the web. However, smaller sellers are not exempt from the laws that govern Amazon FBA and sales tax.
Does Size Matter?
Of course, your sales are probably a tiny fraction of Amazon’s. You might not get caught by one of the states where Amazon FBA creates sales tax nexus for you. The trail of online commerce is easy to trace, however. Just as computers make it easy to shop, they also make it easy and cheap for states to trace the activities of even small ecommerce sellers, so even small sellers can’t be sure they will fly under the sales tax radar.
It’s a good idea to know where Amazon FBA gives you sales tax nexus and to stay one step ahead of your sales tax obligations. Sales tax compliance software that interfaces with Amazon is a great way to make this process easier.