Does Amazon FBA Inventory in California Trigger Nexus?
- Sales Tax
- Jul 8, 2016 | Laura McCamy
You won’t be surprised to know that Fulfillment by Amazon, or FBA, has at least nine warehouses in the great big state of California. Not only does the state have the largest number of residents of any of the 50 states (it beat Texas by almost 12,000 and has nearly double the population of New York State, as of the latest available figures), but it’s also a gateway to Asian markets.
If you use FBA to warehouse and ship your Amazon orders, the odds are good that some of your product could end up in one of those California warehouses. If it does, your Amazon FBA inventory in California will trigger CA sales tax nexus.
California calls the collection of taxes on sales by remote sellers "use tax" rather than "sales tax" (though it amounts to the same thing). The state defines being “engaged in business” in the state (and thus liable to collect and pay CA sales taxes on sales to California residents) to include instances when “the retailer maintains, 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, or other place of business in California.” Thus, your Amazon FBA inventory in California triggers nexus.
California is an origin-based state with tax rates that vary from one locality to another. The statewide base rate is 7.5 percent, but most municipalities tax on additional amounts. The sales tax rate you charge your customers should match the rate of the location of the warehouse from which it was shipped.
Just to make CA sales tax extra confusing, California’s district taxes are destination-based. Fortunately, out of state sellers can base their district tax on the location in the state where they have nexus -- such as an Amazon FBA warehouse.
If you haven’t been collecting California use tax as a remote ecommerce seller and you’re worried about past tax liability, the state has a way out for you. If you come forward without prompting and voluntarily register to collect use tax, the penalties and look-back are limited and you can set things right with California.
If your head is still spinning, don’t worry. Sales tax automation and compliance software can help you make it through even the most complicated sales tax situations. You know -- like the one where Amazon FBA inventory in California triggers sales tax nexus for your business.