Marketplace selling can be a smart strategy for merchants who want to expand their business. But what if you don’t have the time, money or resources to fulfill more orders in-house? You could consider becoming part of an order management and fulfillment network such as Fulfillment by Amazon (FBA).
FBA gives third-party sellers access to Amazon’s world-class infrastructure and logistics including inventory storage, fulfillment, delivery services, even customer service. As an FBA seller, you gain access to new buyers and your products get into the hands of customers get far more quickly and affordably that you could do on your own. Amazon is highly trusted by consumers, which adds credibility to your brand.
Sounds great, right? From a sales growth perspective, yes. In fact, when surveyed, 7 in 10 FBA sellers reported an increase in sales of 20% or more after becoming participants. But while FBA can help you increase sales, it can also increase your sales tax liability. Amazon vast network of warehouse and distribution centers is a convenience for sellers and customers, but it’s also a money maker for the states. State sales tax nexus laws—at one time even called Amazon Laws—have evolved the definition of “physical presence” to include inventory storage, fulfillment, drop shipping, affiliate marketing and online sales to such an extent that Amazon now collects sales tax in 24 states. That means, as an FBA seller, you likely have multi-state nexus as well.
The question then becomes: how do you know where you have nexus? That’s where it gets tricky. As an Amazon seller, your merchandise could be stored in or pass through any number of warehouses or distribution centers on its way to your customers. And you have no way of knowing where items are stored or in which states your customers are located until the transaction is complete, which makes staying on top of your sales tax obligations difficult.
To simply this process, consider automating sales tax in your ERP, ecommerce or billing system. When you add this functionality through a certified provider like Avalara, the right tax rates and rules are automatically applied to every transaction. Avalara can also help you manage the process of registering nexus and filing sales tax returns.
To gain a better understanding of the tax risks associated with marketplace selling, check out our FBA Seller’s Guide to Sales Tax.