Sales Tax Reform: Amazon Fulfillment Services Creating Confusion

February 2019 | Article

By Laura Robichaud and David Casper

Since the U.S. Supreme Court’s Wayfair decision, many states have made changes to existing nexus laws or created new laws to address the decision. These changes are having an impact on many businesses operating across state borders physically or online. We continue to hear stories about problems that have developed after the Wayfair decision and are expanding our work with clients related to their new sales tax filing obligations, as well as clarifying where nexus may have been established under the new sales tax reform rules.

Amazon Fulfillment Concerns
Some business owners use Amazon to fulfill orders. This could mean inventory is being stored and shipped from warehouses across the United States, creating the potential for nexus in multiple states. If you sell products online that are being fulfilled by Amazon, completing a Sales Tax Risk Assessment is a good way to determine your exposure. Where you’re storing inventory, and shipping from and to, could create nexus depending on state threshold laws for either volume of sales or number of transactions. It’s important to know where you currently have inventory being held or shipped to, especially when working with Amazon or similar outlets.

Online Sales Thresholds
For other companies that sell products both in stores and online, they must take a look at online sales and which states have a threshold requirement. Meeting a minimum threshold requirement will create nexus and add filing obligations.

Employees Creating Nexus
Another benefit of a Sales Tax Risk Assessment is to determine sales tax exposure if you use employees to make sales in different states. If you have employees in certain states going door to door and making sales, you create physical nexus through the presence and activities of those employees. But, understanding the rules of using sales-type employees will help you to understand the limitations, thereby allowing you to adjust your operations as needed.

There is no unification on the state sales tax laws, which can make sorting through them frustrating, confusing and time consuming. Contact your Eide Bailly professional or a member of the State and Local tax team to learn more and/or to request a Sales Tax Risk Assessment.

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