How do I find my Amazon FBA Sales Tax Nexus?

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.

Amazon FBA Sales Tax

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.

Economic Nexus is The Newest Kind of Nexus

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;

You have nexus. Now what?

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:

1. Open Seller Central
2. Open Reports
3. Open Fulfilment

The Inventory Event Detail section shows you where Amazon stores you inventory

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.

Read also: The Ultimate Sales Tax Guide for Amazon FBA Sellers

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!

Fulfillment Centers where Amazon stores your inventory

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.

Amazon Fulfilment Centers

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.

📺 Top 10 YouTube Channels for Amazon Sellers in 2020

There are several guides out there on how to have a successful business on Amazon, but we at taxomate always found it easier to watch someone explain it than to read thousands of words. That’s why we collected a list of some of the top YouTube channels for Amazon sellers for you!

1. Kevin David
2. FulfillmentByAmazon
3. Jungle Scout
4. Project Life Mastery
5. Full-Time FBA
6. Dan Vas
7. Derrick Struggle
8. Seth Kniep
9. Wholesale Ted
10. Life Success Engineer

1) Kevin David

Total Subscribers: +700k

Creator of what he calls the “Freedom Movement” - a massive movement of people looking to financially free. He quit his 9-5 accountant job to focus on making money online, including passive income. He shares his experiences and knowledge with the rest of us, so we don’t feel the stress of feeling trapped in a desk with a tedious job that has nothing more to offer.

2) FulfillmentByAmazon

Total Subscribers: +60K

The official YouTube channel for Fulfillment by Amazon goes into detail on how FBA works. Ship to an Amazon FBA center and they take care of your inventory doing all the work for you while you still get an income for each sale. If you think this option applies to what you want to make sure to check it out!

3) Jungle Scout

Total Subscribers: +132k

Created in 2015 by Greg Mercer as a solution to the struggle new Amazon sellers usually go through. He created a toolkit that people can acquire full of tools and resources to launch and grow a business on Amazon.

4) Project Life Mastery

Total Subscribers: +800k

Stefan James from Project Life Mastery focuses not only in giving handy tips and strategies for making money online but also how to change your mindset and to live a healthy life as well while you are at it. Sometimes that’s all we need to make that one decision that can change our whole life into a positive outcome.

5) Full-Time FBA

Total Subscribers: +30k

Created by Stephen and Rebecca Smotherman, they have been in the Amazon selling the business since 2011 and 2013, meaning they have many years of experience to back them up and know what some of the common mistakes new sellers make are. Stephen and Rebecca both part-time work hours selling online, which combined, works great for them and their family. This allows them to have the commodity of having your schedule working from home.

6) Dan Vas

Total Subscribers: +74k

Dan Vas is a self-made internet millionaire entrepreneur, YouTuber, and influencer. He believes everyone has a significant potential to achieve great things and live their best life. Through his videos, he shares his experiences and tips to make this happen and help those people awake from their monotonous life and opt for new business opportunities. He is living the dream!

7) Derrick Struggle

Total Subscribers: +173k

This YouTuber known as Derrick Struggle started as young as 14 years old selling t-shirts and built his official first company at 16, he confirms he has made over 8 figures thanks to different e-commerce business and passive income. His goal is to share his knowledge with the rest of us. I wonder what we were doing at 16 instead of making millions like him.

8) Seth Kniep

Total Subscribers: +180K

With 24k in debt, living a miserable life and fed up with his job, Seth decided enough was enough, so he started to make changes with a single dime. Today he is a self-made millionaire, he has different passive income businesses and is ready to help people like us, live their dream lives.

9) Wholesale Ted

Total Subscribers: 376K

At wholesale Ted, you can find creative and engaging content about e-commerce, Amazon tips, training, case studies & tutorials. Their videos focus on actionable advice on how you can start, grow & scale your own business

10) Life Success Engineer

Total Subscribers: 4k

Although still considered a small channel compared to the previous ones mentioned, Life success Engineer has so much to offer and will grow without a doubt. They say their mission is to help people take MASSIVE ACTION in life to achieve the goals and visions they have! Make sure to check them out in their journey to help other people grow with Amazon tips and tricks.

🤑🤑 How to pay yourself from your Amazon Seller LLC Business

Looking to stand out from the crowd and protect your assets by turning your Amazon seller business into an Amazon Seller LLC (Limited Liability Company)?

Why it Makes Sense to Establish an Amazon Seller LLC

There are many advantages to establishing an Amazon Seller LLC, including:

1. Increasing Reputation

Plain and simple, when customers see a product is from an established business with a business name, they are more likely to make the purchase.

2. Protect your Assets

LLCs are separate legal entities from you as a person. In other words assets of your business and your assets are kept separate. Anything that happens to the company shouldn’t impact your assets.

3. Easier to Manage Finances

Having a different business bank account for your business makes it much easier to track income, outgoings, and profits. Taxes at the end of the year are easier since you only have business expenses in your accounts, instead of having to sift through and separate personal and business expenses.

LLCs are one of the best business entities for small business owners such as Amazon sellers:

• Simple and often less expensive to establish.
• Easy to run: primary business entity for small business and solopreneurs (sole proprietors).
• Less legal and compliance obligations compared to other business structure types.

How to Pay Yourself From an Amazon Seller LLC

Now you know the reasons behind forming an Amazon Seller LLC, let’s look at how to pay yourself from one.
The two main options to pay yourself as from an LLC are to:

Option 1: Treat yourself as an employee and pay yourself a wage.

Option 2: Treat yourself as an LLC member and take a distribution of the profits.

Option 1: Earn Wages as an Employee

Paying yourself as an employee of your Amazon Seller LLC means giving yourself regular compensation that you can plan around. This is the right choice if you want to get a steady income.
In order to pay yourself a salary from a single member LLC or any other kind of LLC, you have to be actively working with the business. You need to have a real role in the company and have real responsibilities to justify your wages.

Multiple LLC Owners: Where there are several LLC owners, and all participate equally in running the business, you aren’t able to pay just one person a salary without paying one to the others.

Single Member LLC: If you were the only person with a management role though, then you could set a salary up for yourself without needing to pay salaries to other LLC members.

Employee wages are operating expenses and deducted from the LLC's profits. The IRS will only allow you to deduct reasonable wages, so make sure that the salary you pay yourself is fair and within the norms of your industry. You can also provide employees with bonuses, and that includes yourself. Once again though, these businesses have to be reasonable compared to the salary you are paying yourself.

You’ll have to file the W-4 IRS Form to determine how much payroll withholding from each paycheck you’ll receive. The LLC pays you as a W-2 employee and therefore withholds income and employment taxes from the paycheck you receive. You will also have to pay income tax for the wages that you earn.

Option 2: Receive Distributions from Profits

Another way to pay yourself from an Amazon Seller LLC is to receive distributions of the LLC’s profits.

Each member owns their percentage of the LLC, called their capital account. The year-end profit is then distributed based on the size of these percentages.

For example, if an Amazon Seller LLC made $100,000 in profit and you own half of the company, you are entitled to receive $50,000.

Setting Up Draws

You can set up a draw to receive payments across the year or draw against the year-end profits.

If you believe that your percentage would be worth $12,000 by the end of the year, then you could arrange to receive $1,000 a month. The total amount drawn across the year is deducted from year-end profit. So if you were to draw $12,000 and the profits for the business ended up being $15,000, you can still get $3,000 at the year’s end.

If you are the sole member of the LLC, you pay income tax on distributions and have to file Schedule 3 to report the profits and losses of your LLC with your personal tax return.

If the LLC has more than one member, then the LLC is considered a partnership by the IRS. It is up to each member to report their share of the profits and pay their income taxes on their share.

The LLC should file an IRS Form 1065 to report profit distributions.

NOTE: You should keep in mind that these two options – receiving a salary and receiving distributions – are not mutually exclusive. If you receive a paycheck, you are still an LLC member and are still entitled to receive year-end distributions.

Other Options to Consider

These aren’t the only options you have at your disposal for paying yourself as from an Amazon Seller LLC. You also have the option of paying yourself as an independent contractor. This doesn’t come with many benefits though.

There is, of course, also the option of not paying yourself anything and letting the LLC keep the profits. You’ll still have to pay income taxes on the profits earned though.

How you choose to pay yourself is up to you, and can change depending on the kind of business you run, how many people are a part of the LLC, and how simple you want to keep things.

See also Legal Entities for US Amazon Sellers