Top 5 Myths About Nexus and Amazon
February 15, 2017 | Sales Tax
By Suzanne Kearns
Amazon is big business, and that’s why so many sellers use it as their selling platform. In fact, Slice Intelligence, a market research firm, says that Amazon accounted for more than half of online sales in the U.S. last year.
But along with all the sales come some pretty big myths about how Amazon affects nexus for its sellers. Here are five of the biggest nexus and Amazon nexus myths around.
1. As an Amazon seller, my nexus matches Amazon’s
There has been a lot of news lately about Amazon deciding to collect sales tax in additional states, and that has many sellers confused. Too many sellers believe they have nexus in every state Amazon does.
But that’s not how nexus works. Amazon is a separate business from your company, and Amazon has nexus in states where it has nexus triggers, such as a warehouse or employees.
Likewise, you only have nexus in states where your business has a presence, such as those where you have inventory stored in FBA warehouses. It helps to clear the confusion by remembering that while you use the Amazon platform, your business remains separate from the company.
2. I’m an FBA seller so I have nexus in every state where there is an FBA warehouse
Just because you’re an FBA seller, that doesn’t mean that Amazon will store your inventory in every FBA warehouse, triggering nexus in each state that has one.
Amazon will only store your inventory where it makes sense, based on your products and sales. That means you only have nexus in those states where your inventory has been stored in FBA warehouses. Your inventory’s location can change frequently, and Amazon maintains no obligation to inform you of the change, so this issue requires constant monitoring. Make sure you know how to keep track.
3. I don’t have to worry about sales tax because Amazon will figure it all out for me
Another common myth is that because Amazon knows which FBA warehouses store your inventory, the company already knows the states in which you have nexus and will automatically collect sales tax for you in those places. Unfortunately, it’s not that simple.
It’s up to you to inform Amazon of the states in which you have nexus. To do this, go to Seller Central and find your Inventory Events Report. Download it, and you’ll see a list of each state in which your inventory has been stored. You have nexus in those states. Next, go to your Sellers Central page and click on the Settings link. From there, find your Tax Settings page and indicate where you want Amazon to collect sales tax for you (states, counties, cities). Include the states where you inventory is stored, as well as any other states in which you have nexus.
4. I can limit nexus to one state by using the FBA Inventory Placement Service
Amazon offers this service to allow sellers the ease of shipping all their inventory to a single Amazon fulfillment center, and many people believe their inventory will stay at this center, only creating nexus in that state. But Amazon ships out the inventory to multiple fulfillment centers, which spreads it out across the country. You end up with nexus in any state where it winds up in a warehouse. In addition, Amazon says that it can’t guarantee you’ll always be able to ship to the same fulfillment center, and every time it changes, it will create nexus in additional states.
5. No one will find out where I have nexus so I don’t need to worry about collecting sales tax
As many states struggle to make up for budget shortfalls, they are getting serious about holding online sellers accountable for the collection and remittance of sales tax. And if you don’t think states can find out that your inventory is stored in an FBA fulfillment center, you’d better think again.
In a 2012 interview with CNET, a representative of California’s State Board of Equalization said, “You can assume we’ll have ways of finding out who’s holding stocks of goods in California. We have enforcement authority to obtain information in a variety of ways. We’ll be approaching them with respect to their tax obligations.”
Remember, if you fail to collect sales tax in a state where you have nexus, you could be held responsible for the sales tax, along with any penalties and interest.
Now that we’ve busted the most common myths associated with Amazon sellers and nexus, you can take the steps to ensure that you’re compliant in all the states where you have nexus. Incidentally, we designed TrustFile to help you with exactly that.
What are your thoughts on this topic? Share with us in the comments below.