In the dynamic world of e-commerce, Amazon's Fulfillment by Amazon (FBA) program has transformed the way businesses operate. By entrusting Amazon with storage, shipping, and customer service, sellers can focus on growing their brands and inventory. However with these benefits come responsibilities, especially in terms of tax compliance.
In this blog, we'll explore the key aspects of FBA tax compliance that every business owner should be aware of. These principles do also apply to the Walmart Fulfillment Services (WFS) program.
How FBA Works:
Amazon’s Role:
Amazon remits sales tax for all states, regardless of sales volume or nexus. But some states request that, if you have a physical or economic nexus, you register and file a gross filing with no payment required. When utilising FBA, nexus could be established in multiple states due to the presence of inventory in Amazon's warehouses.
Sales Tax Nexus:
You’ll always have sales tax nexus in your own business state (where your business is registered and located.) Each state has its own rules and regulations regarding sales tax, and keeping up with these can be challenging. This underlines the importance of having a robust tax compliance strategy that takes into account the nuances of each state's tax laws. See our Nexus blog for more information about sales tax nexus.
FBA Compliance:
It’s important to acknowledge that FBA sales tax compliance is not optional—it's a legal requirement. Business owners using an FBA model must navigate the complex landscape of multi-state tax regulations, sales tax collection, and use tax reporting.
You can use your ‘Inventory Event Detail Report’ from Amazon Seller Central to determine where your inventory is stored.
Once you have determined where your inventory is stored you may be required to register in those states. It’s important to register before you begin as some states consider it illegal to sell without a sales tax permit.
FBA Sales Tax Filing:
Once you receive your permit, you will also be assigned a sales tax filing frequency and sales tax due dates. It is a legal requirement to file in the states where you have a sales tax permit. Your filing frequency is generally monthly, quarterly or annually and depends on your sales volume. The more you sell in a state, the more often that state wants you to file a sales tax return. If your sales dramatically increase or decrease as time goes by, your state may assign you a new filing frequency. Always be on the lookout for letters or other communications from your state once you’re registered for a sales tax permit. You can find find more information in our FAQs page.
Some states have additional taxes to consider:
Some states require franchise tax if you have a physical or economic nexus and it would be advisable to check with the state your business is registered in or contact us for support.
For example, If you have physical or economic nexus for sales tax in Texas, you must also register for Texas Franchise tax. Any sales made over $1.23 million (2022-2023 tax year) are subject to the additional tax. You are still required to file a franchise tax report even if your sales don’t reach this amount.
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