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How Amazon’s new sales tax collection rules affect third-party sellers

  • Jun 15, 2017 | Suzanne Kearns

If you keep up with sales tax news, you’ve undoubtedly heard that on April 1, 2017, Amazon began collecting sales tax in every state -- regardless of whether or not it has nexus in the state. The move has caused a lot of confusion among third-party sellers who are wondering how it affects their own responsibilities to collect sales tax. We decided to clear up the confusion.

First, a quick primer on nexus

Before we tell you how Amazon’s decision affects your business, let’s talk about what constitutes nexus in most states. Remember, every state is different, and you should know the rules in the states in which you sell. But here are some of the things that can trigger nexus in most states.

  • You have an employee in the state
  • You store inventory in the state, including FBA inventory in Amazon’s warehouses
  • You use an affiliate in the state
  • You advertise continuously to the residents of the state
  • You meet certain sales minimums or have a certain number of transactions (see this article for a complete overview of economic nexus and the states that are enacting it) 
  • You use a drop shipper based in the state
  • Your employees travel to the state for a business related purpose

So, how does Amazon’s decision affect you?

Just because Amazon made the decision to collect sales tax in every state, including those where they don’t have nexus, that doesn’t mean you have to. Amazon is a gargantuan retailer that sells everything from books to appliances. Its decision to collect sales tax doesn’t affect your seller status because using the platform to list your products doesn't make you a part of Amazon’s business. It has agreed to collect sales tax on the products it sells, not on the products its third party vendors sell.

In other words, Amazon’s decision to collect sales tax in every state doesn’t affect you at all. But it's important to note that its decision to collect sales tax in all states could ultimately affect FBA sellers because Amazon is now free to add warehouses in any state it wants to in order to speed up deliveries. And if your inventory is stored in one of those new warehouses, you will have nexus in that state and be required to collect sales tax.

But as an online retailer, it’s important that you understand where you have nexus and collect and remit the tax in those states. If you have any doubt about your nexus status, you can take a free survey to determine exactly where you have it.

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
Suzanne Kearns
Avalara Author Suzanne Kearns