When the internet was created, nobody imagined it would become as great as it has today. Businesses now have a new way of selling products to consumers, and as always the new way comes with a complicated sales tax system. The main question that always comes up with talking about internet sales is the following: “When do I collect and remit sales tax in other states?”
When Amazon opened its doors, the company probably did not imagine it would have its fingers in a lot of different pots. The newest dabble is fulfillment by Amazon (FBA). The FBA service has now opened a business up to nexus in other states. How you may ask? Well, let’s start with explaining what nexus is.
Nexus
Nexus can be defined as the connection or link with a state. When it comes to sales tax, a link to the state must be “physical.” However, “physical” does not just mean having real property in a state; it can also include inventory, rented equipment and employees.
Now that nexus has been explained for sales tax purposes, let us take a look at what FBA really is. The following steps relate to FBA:
- A business will need to set up a FBA account with Amazon.
- A business will then need to create a listing of all products it is selling.
- All of the products will need to be prepared for shipping.
- Once the products are prepared, they will be shipped to Amazon.
- When customers order your product, Amazon will pick it from its warehouse, pack the product and then ship it to your customer’s doorstep.
- Amazon provides customer support on all the products you sell.
The question now becomes, how do I know if I have nexus? Once a business has shipped its products to Amazon, nexus is now established between you and the state where your product was shipped. Nexus has been created because you now own inventory in that state.
By owning inventory in another state, you are now required to collect and remit the sales tax for that state plus the one you have established residency in. The following states have fulfillment centers: Arizona, California, Connecticut, Florida, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Nevada, New Jersey, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington. If your product gets shipped to any of the above states, nexus has been established.
