One of the most rapidly growing means that companies are using to increase their sales is by offering their products through Amazon.  Many businesses are selling their products through the Amazon FBA program (Fulfillment by Amazon).  When a seller uses the FBA program that Amazon offers, they are typically instructed to ship inventory to an Amazon warehouse with an agreement that, as the company sells their products through Amazon, Amazon will take ownership of product shipment and order fulfillment. The seller’s products are stored in Amazon fulfillment centers where Amazon picks, packs, ships, and in some cases, provides customer service for those products.

When using FBA, a company generally sends its inventory to one Amazon warehouse location; however, depending on how the product is listed for sale, Amazon may relocate the inventory across many states where they have fulfillment centers.  Owning inventory in another state creates nexus in that state for sales and income tax. If Amazon is handling a company’s customer service and delivery for their products, there is also the potential for states to take the position that those services are creating an agent relationship, allowing the company to create or maintain a marketplace in those states.

The opportunities provided to businesses through FBA to expand their customer base without having to handle much of the back-end fulfillment responsibilities, especially for small and medium-sized businesses, has proven to be advantageous for many sellers.  With the expansion of business through e-commerce also comes the potential for the expansion of a company’s nexus footprint for state and local taxes.

According to the Tax Foundation’s Fiscal Fact No. 572, forty-five states and the District of Columbia collect statewide sales tax in addition to having either income, gross receipts, franchise, or business privilege tax filing requirements once nexus is established in their respective states. For all states, owning inventory that is stored or warehoused in a particular state creates nexus for sales and income tax purposes and, in many states, third-party fulfillment arrangements will create nexus for sales tax purposes.

Whether you are using FBA or other avenues of e-commerce, the challenges of state and local tax compliance requirements can be extremely daunting and challenging.  Contact us to see how we can help you determine where you have left or are looking to create a nexus footprint.