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4 | BIZGROWTH STRATEGIES – SUMMER 2016 CBIZ, INC.
Tax & Accounting
BY GEOFFREY J. CHRISTIAN & TR YODER
Fulfillment by Amazon (FBA) is a service provided by
Amazon used by merchants and retailers. This service
allows online retailers to use Amazon’s personnel and
facilities to handle the fulfillment process. Retailers
who use FBA benefit not only from the order taking,
handling, packaging and storage of inventory, among
other services, but also from the quick delivery
of product to their customers. While a big
opportunity for the retailer, the sales tax
implications of using such a service
should not be overlooked.
Can an Amazon warehouse location
create sales tax nexus for an online
retailer?
Nexus is defined as the minimal
connection that must be present
between a state and a business that
requires the business to remit tax to
the state. The physical storage of an FBA
retailer’s goods in an Amazon warehouse
constitutes this minimal connection. This can
cause a retailer operating in just one state to suddenly be
operating in every state where inventory is being held and
may establish nexus and sales tax reporting requirements
in every state that the retailer houses inventory.
Can Amazon fulfillment services create sales tax nexus
for an online retailer?
An online retailer can also establish nexus in a
state by use of Amazon’s fulfillment services. Activities
performed by a third party generally create nexus for a
retailer if the activities are closely related to the taxpayer’s
ability to carry on business in the state. FBA includes
warehousing of inventory, order processing, returns
management, etc. These activities are closely related to
the taxpayer’s ability to carry on business in that state,
thereby establishing nexus.
Taxability of Sales
Once nexus is established in a state, sales of tangible
personal property (TPP) from the retailer into that state
may require the collection and remittance of sales
tax. Generally, TPP is subject to sales tax in all but five
states, unless exempted by statute. Usually, most FBA
merchandise will be taxable.
Using Fulfillment by Amazon:
State & Local Tax Issues at Stake
TR YODER
CBIZ MHM, LLC – National State & Local Tax
Greenville, SC
864.478.1140 •
Alongside its FBA service, Amazon provides a service
called the Tax Collection Service that assists with the
sales tax compliance for a retailer’s product sales once
the retailer has registered with a state. This simplifies
the task of keeping up with product sales for the online
retailer. Management of the service is the responsibility
of the retailer and includes determining which states
require collection of sales tax, calculating the correct
tax liability, filing returns and remitting tax to the various
states, refunding tax to customers for returned
merchandise, and reporting any penalty and/
or interest on sales tax materializing as a
result of the FBA process.
Sales tax compliance for retailers
participating in FBA business is
not only a requirement but also
an added cost of time and money.
This is causing some retailers with
immaterial sales to forego state tax
registrations until a later point in
time when their sales increase. Other
retailers may be unaware of states’ sales
tax laws while others may think they have no
nexus at all. In the end, registration and filing/
remitting sales tax is a decision that each retailer
needs to consider. The online retailer should consider
issues such as the length of time nexus has existed, its
ability to pay any assessed taxes, interest and penalties
resulting from an audit, and the cost of implementing sales
tax compliance into its business operations.
The safest approach for all companies would be to
enroll in Amazon’s Tax Collection Service to make nexus,
taxability and collection determinations. Addressing the
sales tax compliance and state registration up front is
advantageous over the consequences of noncompliance. If
monitoring the inventory location is difficult, consideration
should be given to the registration and sales tax collection
in all states where Amazon has warehouses.
GEOFFREY J. CHRISTIAN
CBIZ MHM, LLC – National State & Local Tax
Greenville, SC
864.241.2009 •