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Imagine having an online business.  One day, you decide to use Amazon’s Fulfillment By Amazon (“FBA”) services.  Unbeknownst to you, your inventory is stored by Amazon in several states.  One day, you get a letter from the Department of Revenue.  The letter says that because you have nexus with that state, you must collect sales tax on sales to customers of that state.  Your first thoughts are “what is nexus” and “why does that mean I have to collect sales tax, especially when my store is not in that state?”


Many states assert a business has nexus (that is, a connection) with that state merely by having inventory present in the state.  It is irrelevant there are no employees, independent contractors, or office locations in the state.  Rather, you, like many other online sellers, used Amazon’s FBA services.


Amazon’s FBA service stores your inventory across the country.  Consequently, these states declare you, and any other seller with inventory in the state through Amazon’s FBA service, have nexus.  Thus, you must collect sales tax on sales to customers located in the state.  This article discusses nexus and the application to remote sellers that only have inventory stored in these other states by Amazon.  The article goes on to explain the sales tax implications for sellers using Amazon FBA services.


Nexus is a legal concept that determines whether a seller must collect sales tax on a taxable transaction.  The United States Supreme Court (“SCOTUS”) has determined that if certain requirements are met, then a seller must collect sales tax.  What is interesting about these requirements is that SCOTUS has defined one requirement as entailing “substantial nexus.” This term has two requirements.  First, whether you, the seller, have been put on notice that what you are doing could cause you to be sued in that state. Second, whether there is a connection with the state forcing you to collect sales tax.


In one ruling, SCOTUS provides examples that seem to indicate that a state can only force a seller to collect sales tax in certain instances.  These instances are whether the seller has salespeople, a plant, or an office in the state.  All of these examples have one thing in common –the seller purposefully established a connection (physical presence) in the state.  That is, his or her presence in the state was not by accident.  The seller purposefully told his or her salespeople to go into the state to sell to customers of that state.  Or, the seller purposefully signed a lease for or purchased a plant or office in the state.  None of these examples show the present situation of when a third party brings your inventory into the state without you having a say as to where your inventory goes.


The interesting part of this situation is whether any state has the legal authority to say nexus is established when Amazon, through its FBA services, brings your inventory into that state.  Many of these states may have a statute on point.  In fact, it is not uncommon for the states to cite to their statute.  However, that statute is not the supreme law of the land.  These state statutes cannot overrule the United States Constitution.

About the Author: Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for

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