Do Amazon Sellers Have to File Taxes in Multiple States?

Selling through the Amazon marketplace offers a rapid pathway to scaling your business, potentially transforming a small venture into a substantial multi-state operation. While the appeal lies in expanded customer reach and increased revenue, this growth also introduces significant tax complexities. Many Amazon sellers are unaware that leveraging Amazon’s fulfillment network (FBA) or shipping across state lines can trigger tax obligations beyond their primary location. Please continue reading as we explore whether Amazon sellers are mandated to file taxes in multiple states and how a seasoned eCommerce Accountant can assist you.

What is “Nexus” and Why Does It Matter?

First and foremost, it is important to understand that “nexus” is the legal prerequisite—a sufficient connection between your business and a state—that grants the state the authority to demand tax collection or return filing. Traditionally, nexus hinged on physical presence: having employees, a physical office, owned inventory, or other tangible assets within a state’s borders. 

For Amazon FBA (Fulfillment by Amazon) and FBM (Fulfillment by Merchant) sellers, nexus can be established by:

• Physical Location: your main home, office, or headquarters
• Personnel: Employees or independent contractors working in a state
• Inventory: Goods in Amazon fulfillment centers/warehouses within a state
• Other Assets: Trade show attendance, owning warehouses, or other tangible business presence

If nexus is established in a particular state, that state typically has the legal right to require your business to comply with two main tax obligations:

• Sales Tax: Collection and remittance of sales tax on transactions made to customers residing in that state.
• Income/Franchise Tax: Filing of tax returns on business profit that is properly apportioned or attributed to activities within that state.

It should be noted that in 2018, the U.S. Supreme Court ruling South Dakota v. Wayfair dramatically shifted the sales tax nexus. This decision permitted states to mandate sales tax obligations based on economic nexus, eliminating the need for physical presence. The economic nexus uses thresholds based on a combination of gross sales revenue and transaction volume. If you exceed the threshold, it will trigger the requirement to register, collect, and remit sales tax in that jurisdiction. Determining where your business has nexus is the indispensable first step in evaluating your multi-state filing requirements.

How Can Amazon Sellers Manage Multi-State Taxes?

Tax compliance for e-commerce sellers, especially those using FBA, is crucial. Establish clear visibility into your business’s presence before tackling numerous registrations. This step generates your “nexus map,” providing a foundational starting point for discussions with tax professionals.

The rules are different for different sales channels. You will need to segment your revenue to understand where you are responsible for tax collection versus where the platform handles it. Given the complex, ever-changing patchwork of state and local tax rules, going it alone is a major risk. At Ebiz Accounting, we are prepared to help you identify your true obligations. Connect with our team today for guidance.