Many entrepreneurs have entered the electronic commerce industry via Amazon’s FBA program. With FBA, Amazon acts as the warehouse and distribution center by storing products and taking care of all the sale side logistics. Using Amazon’s vast resources for filling orders is an asset any business would be attracted to, especially a small retailer with a limited network.
Though they aren't extremely difficult to start, operating an FBA business is not straightforward. Tax rules for small businesses are sometimes complicated and hard to understand. In addition to federal tax laws, each state has the right to levy its own sales taxes. Though FBA businesses are often small, they could have nationwide exposure due to Amazon’s distributed nature. More specifically, the stored inventory in the Amazon warehouses generally creates nexus for sales tax purposes and thus the requirement to collect and remit sales tax wherever the inventory exists.
As an example, a company headquartered in North Carolina may utilize Amazon who stores their inventory in a warehouse in California to help with shipping to the western US. Though the sale may take place elsewhere, the company is responsible for California sales taxes. This can happen in any state where Amazon stores the inventory – potentially 20 or more. This can be quite a financial shock to a small business owner.
Don’t be surprised by unexpected taxes! Sales taxes are daunting, but TaxConnex can help. For additional information on Amazon FBA and how it can create a sales tax obligation, download our Executive Briefing.
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