Sales tax for Amazon FBA sellers: where your inventory creates nexus

The short answer

If you sell only on Amazon, Amazon handles the sales tax on those orders in every state that charges one. You do not collect it, and you do not pay it over.

FBA adds a complication. Amazon moves your inventory between fulfillment centers without asking, so you can end up with stock in states you have never visited. Stock in a state counts as a physical presence, which tax people call nexus. Whether that nexus means you must get a permit and file returns is decided state by state, and the answers differ. The moment you also sell through your own website, the answers change again, because nobody is collecting tax on those orders for you.

Two kinds of nexus

Nexus is the connection that lets a state require a seller to collect its sales tax. There are two ways to have it.

• Physical nexus comes from being in the state: an office, an employee, or inventory stored there.
• Economic nexus comes from selling enough into the state. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect tax based on their sales alone. Each state sets its own threshold.

An FBA seller can have both at once: physical nexus where the stock sits, and economic nexus where the customers are.

What Amazon does for you

Every state that imposes a sales tax now has a marketplace facilitator law. These laws move the duty to collect and remit sales tax from the third-party seller to the marketplace. Missouri was the last state to switch its law on, in January 2023.

Under those laws Amazon calculates, collects, remits and refunds the sales tax on third-party orders shipped to those states. You cannot opt out, and the tax never passes through your hands. Five states have no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire and Oregon.

What Amazon does not do is register you with any state, file a return in your name, or deal with sales you make anywhere other than Amazon.

What FBA inventory changes

When you send stock to FBA, Amazon decides which fulfillment centers hold it and moves it as demand shifts. You have a physical presence in each state where your units are sitting, whether or not you ever shipped anything there yourself.

States treat inventory as a trigger in their registration rules. California's tax agency, for example, lists maintaining inventory in the state among the activities that normally require a seller's permit. So the question for an FBA seller is not whether inventory creates nexus. It is what each state expects from a seller whose only sales in the state go through a marketplace that already collects the tax.

Does nexus mean you have to register?

Not always. Two large states show how far apart the answers can be.

California

The California Department of Tax and Fee Administration answers this directly. (For thresholds, rates and registration, see California sales tax for online sellers.) If all of your retail sales of merchandise are facilitated by a marketplace facilitator that is registered with the department, you are not required to register for a seller's permit or a Certificate of Registration for use tax. The department gives that answer to the specific question of retailers with inventory in California.

The exemption ends when you make sales that are not facilitated by a registered marketplace, such as orders on your own website delivered to California customers. When you test whether you have passed California's economic nexus threshold, you count your direct sales and your marketplace sales together.

California also suggests you get written confirmation from the marketplace that it is registered and is responsible for the tax on sales made through it.

Texas

Texas splits sellers into two groups, and the rule is different for each. The full rules are in Texas sales tax for online sellers.

• Sellers based in Texas. You have a physical presence in the state and must hold an active sales and use tax permit, even if you sell only through a marketplace that collects for you. You must also file your returns on time, even when you have no taxable sales to report. Marketplace sales go into Total Texas Sales on the return and are left out of Taxable Sales.
• Remote sellers. If you sell into Texas only through a marketplace that has certified it will collect the tax, you do not need a Texas permit. The Texas Comptroller applies the same answer to a remote seller whose only presence in Texas is inventory temporarily stored in the marketplace's warehouse, as long as the seller's total Texas revenue is below the $500,000 safe harbor.

Above $500,000 of Texas revenue in the previous twelve months, a remote seller with stock in a Texas marketplace warehouse must get a permit and collect tax on its own sales. Marketplace sales count toward the $500,000, even though the marketplace is collecting the tax on them.

If you also sell on your own website

On your own store, you are the retailer. No marketplace stands between you and the state, so the normal rules apply in full:

• Where you have nexus and the state requires you to register, you need a permit, you charge tax at checkout, and you file returns.
• Your FBA stock counts here too. If Amazon fulfills your website orders from its warehouses, the inventory that serves those orders is the same inventory that gives you a physical presence.
• Economic thresholds are usually tested on all your sales into the state. In both California and Texas, marketplace sales are included in that total, so a large Amazon business can push a small website over the line.

The Texas Comptroller's own example shows how this works. A remote seller makes $300,000 of sales into Texas through its website and $300,000 through marketplaces. The combined $600,000 is over the safe harbor, so the seller must collect and remit Texas tax on the website sales, while the marketplaces remain responsible for theirs.

How to find out where your inventory is

Seller Central has an inventory report that lists each movement of your stock together with a fulfillment center code. At the time of writing it is the FBA Inventory Ledger report, which replaced the older Inventory Event Detail report. Report names in Seller Central change, so search the Reports section for the inventory ledger if the menu looks different.

Each fulfillment center code maps to a warehouse in a specific state. Pull the report, list the states, and repeat the exercise at least every quarter, because Amazon redistributes stock all year.

What to do, step by step

1. List the states where your stock has been held

   Use the inventory ledger report for the last twelve months.

2. Total your sales into each state by channel

   Separate Amazon and other marketplace sales from sales on your own website. You need both figures for threshold tests.

3. Check each state's rule for marketplace sellers

   Start with the states where you hold stock and the states where your sales are largest. Look for the revenue department's guidance on marketplace sellers and remote sellers.

4. Register where a permit is required

   Get the permit before you begin charging tax on direct sales in that state.

5. File every return, including the empty ones

   Once you hold a permit, a state generally expects a return for each period, even when the tax due is zero. Report marketplace sales the way that state's return asks for them.

6. Keep your records

   Keep marketplace sales reports, the marketplace's confirmation that it collects the tax, and your inventory reports. Texas requires sellers to keep records of marketplace sales for at least four years.

7. Review every quarter

   New warehouses, a new sales channel or a strong quarter can each change where you need to be registered.

Inventory can trigger more than sales tax

Sales tax is not the only tax that looks at where your stock sits. The Texas Comptroller states that a remote seller that is a taxable entity and has inventory temporarily stored in a marketplace provider's Texas facility has franchise tax responsibility in Texas. Other states have their own income, franchise or gross receipts taxes with their own tests. When you map your inventory, ask about those taxes too.

Common mistakes

• Treating "Amazon collects the tax" as "I have no obligations". In some states a marketplace-only seller still needs a permit and must file returns.
• Forgetting the website. Direct sales are outside the marketplace rules, and FBA stock can give those sales nexus.
• Registering everywhere to be safe. Every permit creates a filing duty. Register where a state requires it, not where it does not.
• Reporting marketplace sales as your own taxable sales. Where a return asks for them, they are usually shown in total sales and then excluded from taxable sales, as Texas requires.
• Checking inventory locations once. The list of states changes as Amazon moves stock.

This guide is general information. It is not tax or legal advice for your situation.