If you sell products on Amazon, they will automatically collect sales tax for you. When you see that sales tax is being charged, it's natural to assume that your tax compliance obligations are taken care of.
Unfortunately, this is a dangerous misconception for Amazon FBA sellers.
If you use the Fulfillment by Amazon service, Amazon stores your items in its warehouses. This can trigger physical nexus, while doing a certain volume of sales can trigger economic nexus as well.
This means you often must register and possibly file sales tax returns in dozens of states, and face big penalties if you don't.
This guide explains how marketplace facilitator laws work, why sales tax compliance becomes more complicated for FBA sellers, and what steps you must take to get and stay compliant.
What Amazon's marketplace facilitator rules mean for FBA sellers
Before 2018, sellers had sales tax collection obligations only in states where they had a sufficient physical connection. However, in a case called South Dakota v. Wayfair, the Supreme Court allowed states to impose sales tax collection obligations based on economic connections.
After Wayfair changed the rules, states began passing laws to make sure they captured sales tax revenue from as many online sales as possible.
Between 2018 and 2021, states throughout the U.S. passed marketplace facilitator laws. These laws require platforms to collect sales tax on all third-party sales on their site. Marketplaces like Amazon that play a role in enabling sales, such as collecting payment, are subject to the laws.
This means Amazon collects sales tax on all taxable sales on its platform across all 45 U.S. states that have sales tax. When a customer buys an item, Amazon collects the correct amount of tax and remits payment to the state. If the item is from an FBA seller, Amazon also ships it.
However, this isn't the entirety of a seller's sales tax obligations:
- Many (but not all) states still require sellers to hold a sales tax permit once they have physical or economic nexus, even if a marketplace handles their tax collection.
- Others require registration once nexus is established if there are any off-platform sales (even a few dollars worth), even if a marketplace handles most sales tax collection.
- Many require you to file regular sales tax returns, even if Amazon or other marketplace facilitators collect every dollar of sales tax you owe.
FBA can create nexus in many more states than you might expect. You must make sure you are meeting both your registration and filing requirements in all of them.
To make matters more complicated, Amazon doesn’t register for you. Its obligations are limited to collecting and remitting tax.
What is sales tax nexus for Amazon FBA sellers?
Nexus refers to having sufficient connections with a state to justify the state having the authority to require you to register for a sales tax permit and collect sales tax. After Wayfair, you can establish nexus due to economic or physical connections.
As an Amazon FBA seller, there are two potential ways you could establish nexus within a state. You can also establish nexus through outside business activity as well.
Physical nexus from FBA inventory
States have always been able to require you to register for sales tax based on physical nexus, or physical connections. This can include things like having an office or store in a state, having employees there, storing your items there, or even selling items at a trade show in the state.
Enrolling in FBA creates significant nexus exposure because Amazon may distribute your inventory across its entire fulfillment network. Your items can end up stored in warehouses in states where you have never made a single sale.
Amazon has fulfillment centers in dozens of states, so you may have registration requirements across the U.S. And tracking exactly where your goods are stored is complicated, especially as inventory placement changes regularly as Amazon rebalances its network.
It's your responsibility to ensure you're registered everywhere where you're required, so you will need to routinely check your Inventory Ledger report. Set the view to Summary and the "Aggregate by Location" option to FC (Fulfillment Center) to see units stored at each center.
Amazon doesn't show inventory by state directly. You'll need to map fulfillment center codes (like DFW7, ONT8, PHL7) to their physical locations to know which states you're in. The first three letters of each FC code are the nearest airport (e.g., DFW = Dallas, ONT = Ontario, CA), which you can use to identify the state.
Pro tip: Amazon’s FBA Inbound Placement Service allows you to pay an extra fee to place your inventory in limited fulfillment centers, possibly as low as one, reducing your exposure. However, Amazon still reserves the right to move inventory. You must check your inventory report regularly because compliance remains your responsibility
Economic nexus from FBA sales
In addition to physical nexus, Wayfair also allowed states to require sales tax compliance from companies with sufficient economic nexus. This was a major change, as the economic nexus rule meant a physical presence was no longer required.
States were given the freedom to establish their own rules for when a company had enough connections to create economic nexus. Many states established an economic nexus threshold of $100,000 in sales or 200 transactions per year, while some use only a volume threshold. Others have different sales volume limits, so be sure to check with the states where you have nexus.
Once you've hit these thresholds, you establish economic nexus even if you have no goods, stores, employees, or other physical connections. And, these thresholds apply across all sales channels, including Amazon, Shopify, Etsy, your own website, or any other marketplace.
In many states, even if Amazon or other marketplace facilitators collect and remit sales tax for you, sales on those platforms count toward the sales and transaction volume used to establish nexus.
So, if an Amazon FBA seller has 201 sales or $101,000 in sales in a state where they have no physical connection (including goods stored in FBA warehouses), they may still be required to register and file returns even if Amazon has collected every dollar of the sales tax they owe.
Economic nexus usually resets periodically, with the threshold period sometimes the calendar year, a rolling 12-month period, or the current or prior year. But it means that you must track all of your sales across all platforms. Once the economic threshold is crossed, you must:
- Register for a sales tax permit in the state
- File returns on the required schedule (even if it is a zero-dollar return because marketplaces collected and remitted your tax)
- Collect the correct amount of sales tax if marketplaces aren't handling all of your obligations
- Remit tax payments to the state.
Pro Tip: As soon as you have crossed the threshold, the clock starts running on meeting your registration deadline. While some states have delayed effective dates or give you until the next quarter or next month to file, you cannot wait until the next calendar year to register.
How FBA inventory silently creates nexus across the country
Many sellers don't realize the sales tax compliance challenges associated with becoming an Amazon FBA seller. The gap between your pre-FBA and post-FBA registration obligations is often vast, and you must register quickly to remain in compliance.
It's common for sellers to be registered in their home state and perhaps a small number of other large markets before becoming an FBA seller. However, as soon as Amazon begins distributing your inventory, physical nexus kicks in. This is true for even small sellers.
Since the typical active FBA seller has inventory in around 20 to 40 states at any given time, virtually every Amazon FBA seller must register in many locations if they haven't already.
Amazon's Manage Tax Settings in Seller Central is a starting point to understanding your obligations. It shows where Amazon is collecting sales tax on your behalf. However, you cannot confuse this for a list of states where you're registered, as Amazon does not register for you.
You must do a full nexus audit (described below) to understand all the locations where registration is required.
Amazon FBA sales tax compliance checklist
The most important thing to remember is that a marketplace facilitator like Amazon only manages a very small part of your sales tax obligations. Ultimately, you remain responsible for full compliance and are subject to any penalties for failure to follow the rules.
Working through the items on this checklist can ensure you are doing what is required in every state as an Amazon FBA seller.
These are not one-time obligations. Amazon's inventory locations change, sales volume grows, and nexus exposure changes. You will need to complete these steps regularly to remain in compliance as your company becomes required to register in new locations.
Step 1: Audit the states where you have nexus
You will need to conduct a nexus audit by taking the following steps:
- Identify all states where you have physical nexus: Run an inventory report to understand where Amazon is storing your goods. Also, review any other physical connections to states across the U.S., such as local employees, your own warehouses or storefronts, or where you have otherwise had a physical presence.
- Conduct an economic nexus audit: Add up total sales across all sales channels in each state across the past 12 months. Confirm transaction volume and number of transactions. This includes sales on Amazon and all other online or offline sales channels. You can sign up for free nexus monitoring from Numeral if you don’t want to manually do all the work.
Taking these steps helps you identify all states where you must follow sales tax rules. The good news is, there are five states with no sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon. So, you don't need to worry about these locations.
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Step 2: Register for a sales tax permit
You must register in every state where you have physical or economic nexus. You can register through each state's Department of Revenue. It is free to register in most states, although some charge a small fee.
Step 3: Update Amazon Seller Central
You have a Tax Settings option in Amazon Seller Central. You should keep this updated to show the states you are registered in.
Updating this platform does not change how Amazon collects sales tax. As a marketplace facilitator, it is obligated to collect sales tax across the country. However, it is still helpful to keep this updated so your account is accurate and your financial records are consistent.
Step 4: File sales tax returns
In every state where you have nexus, you must file a return on the registered schedule. This is true even if your return shows $0 in tax liability because Amazon is collecting and remitting tax on your behalf.
Unfortunately, many sellers assume that if Amazon is paying their taxes, they don't need to take this step. This is not true. Once you are required to register because you have nexus, you have a separate obligation to file a sales tax return. Amazon will not do this for you.
Filing frequency varies by state. You may need to file monthly, quarterly, or annually. You will face penalties for not submitting this report to tell the state about your economic activity, even if you owe a $0 balance because Amazon is taking care of your actual tax collection.
If you don’t want to handle this yourself, we can automatically file your returns for you here at Numeral.
Step 5: Account for non-Amazon channels
If you sell on other websites, you must determine if they are marketplace facilitators. If they are not, you must collect and remit the correct amount of sales tax in all states where you have nexus.
You cannot assume every site you sell on is a marketplace facilitator. For example, Shopify is not. If you have registered in any state because of physical nexus, you still must collect and remit tax on sales in that state even if you haven't met economic nexus requirements.
So, for example, if you register in Wisconsin because Amazon is storing some of your goods in a fulfillment center there, and you make one sale in Wisconsin on your own website during the year, you must collect the correct sales tax and remit that payment to the state.
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What to do if you're behind on Amazon FBA sales tax compliance
If you are behind on sales tax compliance obligations created because you are an Amazon FBA seller, you are not alone. Many sellers don't realize they have these obligations and are not in compliance with state requirements.
You do, however, have significant legal exposure until you correct the issue. You may have accrued back tax liability, and the state could audit you, possibly resulting in back taxes, interest, and penalties for periods when you were not registered.
States know that many ecommerce sellers are out of compliance, so they have increasingly become targets of audits. It's far better to be proactive than reactive, so you can limit the consequences.
The best path forward for most is a Voluntary Disclosure Agreement (VDA). Many states offer VDA programs that allow sellers to come forward proactively in exchange for reduced penalties and a limited lookback period instead of an open-ended one
In general, however, you should not try to navigate back compliance alone. A tax professional or CPA who specializes in ecommerce sales tax compliance can provide invaluable practical help during this process.
How Numeral can manage Amazon FBA sales tax for you
FBA sales tax compliance is incredibly complicated because you may establish physical nexus in so many different states very quickly, and the states you have nexus in may change as Amazon moves inventory around.
And each new state you register in may have its own filing schedule and its own requirements for submitting returns (even for those with $0 balances). If you have sales made outside marketplace facilitators, each state also has its own rates and rules on what is taxable.
Managing all of this manually creates major operational burdens as your business scales, but even smaller Amazon FBA sellers can face outsized exposure because of the physical nexus rules. Unfortunately, the risk of noncompliance is also high.
The good news is, there's a solution. Numeral can manage all of this for you. Numeral offers:
- Integration with your Amazon store (and other sales channels) to offer free nexus monitoring across the U.S. We monitor for economic nexus based on sales and transaction volume, making it easy to see when you've hit the threshold where registration is required.
- Proactively alert you when you cross a nexus threshold. We can alert you when you establish nexus in a new state, so you'll always know when you have new registration requirements. You won't find out months after the fact that you have a problem.
- Automate registration for you. Numeral automatically registers you for just $150 per state, with no long-term commitment required.
- Automate filing and remittance. Numeral will prepare and file returns on schedule for every state in which you have nexus. You'll also pay a flat fee of just $75 per return, and each one will be reviewed by a U.S.-based tax expert before submission.
- Virtual mailbox: Numeral even manages your correspondence from taxing authorities. We set up a virtual mailbox and respond to any items as necessary.
Numeral backs all our work with the Numeral Guarantee, and you never have long-term commitments to make. Nexus monitoring is always free, and filing and registration come with transparent flat fees.
Book a demo to see more about how we can help manage Amazon FBA sales tax compliance for you.
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Amazon FBA sales tax FAQs
Does Amazon collect sales tax on behalf of FBA sellers?
Amazon is a marketplace facilitator, so it collects and remits sales tax for FBA sellers. However, Amazon's assistance with sales tax compliance is limited to collecting and paying tax for on-platform sales.
You still may be required to register in any state where you have physical or economic nexus, and the Fulfillment by Amazon service can create significant nexus exposure in 20 or more states across the U.S. as your items are physically placed in warehouses across the country .
Do I still need to register for a sales tax permit if Amazon collects and remits the tax?
Many states require you to register if you have physical or economic nexus, even if Amazon or another marketplace collect or remit all sales tax on your behalf. Others require this only if you have some off-platform sales as well.
If you are an FBA seller, you may have physical nexus and thus registration requirements in many states. You may be out of compliance and risk audits and penalties if you don't register and file returns in a state where you have nexus, even if the returns are zero-dollar returns.
How do I find out which states my FBA inventory is in?
To find out where your FBA inventory is, pull the Inventory Ledger report in Seller Central (Reports → Fulfillment → Inventory Ledger), set the view to Summary, and aggregate by Fulfillment Center.
You'll get a list of FC codes (like DFW7, ONT8) showing where your units are stored. The first three letters reference the nearest airport, which you can map to the state.
Amazon moves inventory regularly as it rebalances its network, so this is something to check on an ongoing basis. When inventory sits in a state, it can establish physical nexus, which may require you to register to collect sales tax there.
What is economic nexus, and does it apply to Amazon sellers?
Economic nexus means you have enough connections with a state that you become responsible for registering and collecting sales tax locally. Typically, it is based on transaction volume (such as over $100,000 in annual sales) or number of transactions (such as over 200).
Amazon collects sales tax for on-platform sales, but those sales often still count in determining if you have established economic nexus. Once you have, you often must register with the state to collect sales tax even if Amazon is collecting the tax for you.
Registration is a separate obligation Amazon doesn't fulfill. If you are an Amazon FBA seller, you can also trigger registration requirements via physical nexus in states where you have inventory stored even if you don't meet economic nexus requirements.
What happens if I haven't been registered in states where I have nexus?
If you do not register for sales tax in states where you are required to based on establishing nexus, you could face penalties. This back tax liability puts you at risk of legal exposure.
Many states have Voluntary Disclosure Agreement (VDA) programs you can use to get back into compliance. These limit your penalties and cap the lookback period. A tax professional who specializes in ecommerce can help you understand these options.
Do I need to file sales tax returns if Amazon is already remitting the tax?
You need to file sales tax returns in states where you have economic or physical nexus, even if Amazon is already remitting tax. If you only sell through Amazon or other marketplace facilitators, these will typically be zero-dollar returns.
If you do not file a zero-dollar return when required, you can still face penalties even if you don't have any taxes due. So be sure to monitor for nexus and register as required, or use a service like Numeral that offers free nexus monitoring and registers, files, and remits tax on your behalf.
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