If you are an online retailer selling products across multiple states, you may have heard of the concept of Nexus. There is a lot of confusion about Sales Tax Nexus, especially in relation to FBA retailers. Many FBA sellers simply aren’t aware that they are supposed to collect sales tax in multiple states. Let’s walk through the concept of Nexus and its application to FBA sellers.
Nexus is generally defined as a substantial connection with a state. Different types of relationships may create a substantial connection, resulting in a sales tax obligation. Hence, there are different types of sales tax Nexus, such as physical presence, click-through, and others.
FBA sellers are often unaware of the physical presence Nexus they may have in multiple states. Such presence results from your inventory being distributed among the many Amazon warehouses throughout the country.
Let’s say you started selling through FBA and shipped all your goods to a warehouse in Texas. As far as you know, you have created Nexus in TX and must register there to collect and remit sales tax. Now think of all the Amazon prime members who expect their deliveries to any state within two days. To achieve that, Amazon has distributed your goods among its many warehouses, thus creating Nexus for your business in those states.
Amazon does not publish the number and locations of all its fulfillment centers; however, there is some data available through the leading sales tax software providers, such as TaxJar and Avalara. To find out where your inventory is located, you would need to search thoroughly through the Amazon Seller Central inventory movements.
What does this mean for you as an FBA seller? First of all, you should be aware of your inventory movements and the states affected. Amazon Seller Central reports and sales tax software, such as TaxJar and Avalara, may help you track this information. Then it’s up to you to make the decision on whether you should register with each of those states and start collecting sales tax. This decision is going to be subjective, and not all FBA sellers register with all the states where they may have Nexus. If you think your connection is very insignificant, you may choose not to register and run the risk of paying a penalty in the future. In other words, you are weighing the risk of possibly paying a penalty against the burden of collecting and remitting sales tax in every state with which you have a connection.
You may have also heard of this year’s Supreme Court ruling in Wayfair vs South Dakota case, which established economic Nexus and gave the states freedom to enforce sales tax obligation on online retailers with a substantial economic presence in a state. Keep in mind that physical presence Nexus laws are still in effect. Economic Nexus is an additional criterium states will use to collect sales tax on online sales.
To learn more about Nexus, check out our blog post Sales Tax Nexus & eCommerce or visit our eCommerce page to learn how we can help your eCommerce business.