The main reason that people will comfortably buy things from Amazon – and thus the people selling on there – is because they know that Amazon Prime allows them to receive their packages in two days, if not less. Everything great must have some kind of catch to it though, for Amazon sellers, the catch is Sales Tax Nexus.
Amazon can deliver products nationwide so quickly because they have them sent out to distribution centers before they are even ordered.
You must be registered as a Pro Seller to get Amazon sales tax, which is important because their reports are far more comprehensive for a Professional Seller than they are a regular one.
What is Sales Tax Nexus?
The word “Nexus” comes from the Latin word meaning to “tie” or “bind.” A sales tax nexus could be considered something that ties your business to the state.
U.S retailers are required to collect the sales from buyers where they hold a “sales tax nexus.” The following activities may establish a sales tax nexus:
- Location: This includes any physical place of business such as an office, store, or warehouse.
- Personnel: The personnel at your business are individuals who are employees, salespeople, contractors, installers, and anyone else who works for your business in some capacity.
- Inventory: Many states will consider holding inventory in-state to create a nexus even if you don’t have any other employees or places of business there.
- Sales (the Economic Nexus): For about half of states with a sales tax, sellers who generate revenue or transactions over a set threshold will be required to collect sales tax. The threshold for revenue is around $100,000 and the transaction threshold is around 200, but it can vary state by state.
- Affiliates: An affiliate is someone who advertises your products and services for a piece of the profits and having one can create a nexus.
- Drop-Shipping: There are some situations where having a third-party shipping service that delivers products for you creates a nexus.
- Selling products at an event (i.e. a tradeshow): Some states consider you to have nexus even when selling only temporarily, such as at an event.
What is Economic Nexus?
An “economic nexus” is when sellers are required to collect sales tax because they reach a threshold of either money from the sales or number of transactions. These thresholds are usually $100,000 in sales or 200 transactions in a year.
The economic nexus is the newest kind of nexus for the United States. Around half of the states with a sales tax have their own economic nexus laws. More states have announced they will introduce laws or regulations about economic nexus too.
The economic nexus only came into effect in June of 2018, following a Supreme Court ruling in the case of South Dakota vs Wayfair, which is why it’s a relatively new issue.
How to Determine you Have a Sales Tax Nexus in a US State
Here are the questions you can ask yourself to determine if you’ve got nexus with a state;
- Do you have a physical presence in the state, such as a location or warehouse?
- Do you have anyone working for you in the state such as a contractor, employee, installer, or salesperson?
- Do your sales or transactions in a state exceed the economic nexus threshold of that state? If you don’t know, then check with TaxJar’s Sales and Transactions Checker
- Do you have a relationship with a drop-shipper in the state?
- Do you have an affiliate program and any affiliates in the state?
- Do you cross state lines to sell products at events like craft fairs and trade shows?
If you answered yes to any of those questions, then here’s how you can explore if you have nexus or not;
Amazon Sales Tax Nexus
Amazon makes it easier to determine sales tax nexus thanks to their Amazon Fulfillment reports. These reports will tell you where Amazon stores your inventory. Here’s how to access the Amazon seller sales tax report:
- Open Seller Central
- Open Reports
- Open Fulfilment
- Download Amazon Inventory Event Detail Report
There’s a lot of information on the Amazon Inventory Event Detail report, but it’s better to download the report for yourself then try to read it all on the screen.
Choose the download tab and then pick a time-frame that you want. If you’re interested in determining the states where you have sales tax nexus, choose the date when you first started selling products on Amazon.
You can do this using the exact date option on the report. Choose the dates you want and then wait a few minutes for the report to be generated. It can take longer if there is more data to collect.
You can download the report when it finishes generating. The report will be available as a .txt file and you can open it as is or import it into Excel. Select All and copy and paste it into the spreadsheet. The “fulfillment-center-id” column is where you can see information on all the Fulfilment Centers where Amazon stores your inventory. This is where you have nexus and where you would need to collect sales tax.
Sales Tax Nexus and Inventory Event Report
After opening the Inventory Event detail, you’ll be greeted with something like this;
The column that is most interesting to us right now is the fulfilment-center-ID. In the worksheet, click the top row of the column and choose the filter symbol, either on the Quick Access Toolbar or with the ribbon, and this puts a down-arrow in the top row of the worksheet.
Click on the down-arrow and you’ll find a list of all the fulfillment centers where your inventory has been stored. Warning - this may be quite a lot of information!
Determining Your Sales Tax Nexus
You’ve now got a complete list of all the fulfillment centers where Amazon has stored your products.
If there are any centers that you don’t expect to see then uncheck “Select All” and click the boxes for the centers that seem questionable. This brings up a list of all the products stored in those centers. This is just for your information though. You need to know all the fulfillment centers where your inventory is located.
You might be wondering what fulfillment centers the letters and numbers represent. The center names are determined by the airport closest to the fulfillment center. DFW would mean Dallas Fort Worth Airport, which is – of course – in Texas. CHA is the Chattanooga, TN airport, meaning Amazon stores your inventory in Tennessee.
The numbers after the airport designation indicate how many fulfillment centers are near the airport. This website has a list of all airports by code and state, and here is where you can find a list of all the many Amazon Fulfillment Centers.
Disclaimer: The above information is made available on a good faith basis and is intended only for general education. The article is not to advise on tax or legal issues. We recommend getting in touch with a duly certified tax professional or CPA to assist with any topics raised by this article.