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U.S. Sales Tax for Amazon FBA International Sellers

author photo of Sylvia F. Dion

Are you a foreign company selling on Amazon’s U.S. marketplace? Do you use Amazon’s Fulfillment by Amazon (“FBA”) service?

If you answered “yes” to these questions – you will want to read this post!

When I first started blogging about U.S. Sales Tax for Foreign Sellers, I wrote a post about tax treaties and U.S. sales tax nexus and explained what foreign sellers need to know. I thought that this would be an important topic because many foreign sellers believe that they don’t have to worry about state sales taxes if they are from a country that has a tax treaty with the United States.

And sure enough, the comments, questions and requests for more information began to pour in which confirmed that this was an important topic! I also noticed that many of the comments and questions that I answered came from foreign sellers that use Amazon’s FBA service and that many of those sellers were surprised that using Amazon’s FBA service creates a requirement for them to collect sales taxes in the United States.

You see, as I explain in my Tax Treaties post, the states are not a “party to” and not bound by a tax treaty that our federal government enters into. So even if a foreign seller is not subject to U.S. federal income tax, a foreign seller could be subject to the sales tax laws of the various U.S. state and local governments if they have “nexus” to a state.

Before I explain why foreign sellers that use Amazon’s FBA service have to collect sales tax, I should explain a very important term that we use here in the United States when explaining why an out-of-state or an out-of-country seller (we call these “remote sellers”) must collect taxes in a state. That term is called “nexus”, which means a “connection or a tie." A state cannot impose its taxes (corporate taxes, business taxes) and cannot impose its requirements (such as a requirement to collect sales taxes) on a remote seller unless the seller has a sufficient "nexus" to the state. For nexus to be created, a physical presence in a state must exist.

But here is something that many sellers – both U.S. and foreign sellers – are surprised to find out. A remote seller can have a physical presence in a state even if they do not have an office or store in the state or even if they have never set foot in a state. A physical presence can be created by many "less than obvious" activities, such as simply having inventory in a warehouse and/or by using an independent agent in a state.

When a foreign seller uses Amazon’s FBA service, they send their inventory to an Amazon warehouse in one or several states where it is stored and prepared for shipment to the foreign seller’s U.S. customers. This inventory is still owned by the foreign seller – which means the foreign seller has physical property in a state. (Remember, Amazon does not take ownership of that inventory – the seller continues to own the inventory.) In general, most states would say that having inventory in a state creates a physical presence nexus.

But there’s more. When foreign seller uses Amazon’s FBA service, Amazon acts as the seller’s agent in the state and fulfills an obligation of the seller (Amazon fulfills the order on behalf of the seller). Here again, we have another activity that most states would say creates a physical presence nexus.

I’ll use California’s law as an example. A remote seller has nexus in California (and a requirement to register and collect tax on sales to California customers), if the remote seller is “engaged in business” in California, which the California law defines as:

  • Owning or leasing real or tangible personal property….. in California ,
  • Maintaining, occupying or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business in California,
  • Having a representative, agent, salesperson, canvasser, independent contractor, solicitor, or any other person operating in California on the retailer’s behalf, including a person operating in California under the authority of the retailer or its subsidiary, for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property….

As you can see, it is pretty clear that having inventory that is owned by the foreign seller in an Amazon warehouse and using Amazon’s FBA service to fulfill customer orders on behalf of the foreign seller creates that physical presence nexus in California.

So what should a foreign Amazon FBA seller do?

If a foreign Amazon FBA seller wants to be in compliance with our U.S. sales tax laws, the seller will need to evaluate in which states they have nexus and get registered with the various states for tax collection purposes.

But this is complex topic! A foreign seller may not realize they need to register with each individual state, or how to go about getting registered or what the requirements to register are. I often advise foreign sellers on how the U.S. sales tax laws apply to them and assist them in getting in compliance with the state sales tax laws. And to help our readers understand this process, in the next few weeks I’ll be writing two more posts to explain in more detail what foreign Amazon FBA sellers need to know about getting in compliance with the U.S. sales tax laws. In the next post I’ll start by explaining the U.S. taxpayer identification number requirements and why these are required for Amazon FBA sellers. After that, I’ll write another post explaining what foreign Amazon FBA sellers need to know about registering for state sales tax collection purposes.

Yes, complying with the U.S. sales tax laws is a complex topic - not only for foreign sellers, but even for U.S. sellers too! I invite you to follow this three-part blog series that will help Amazon FBA sellers understand and get into compliance with the U.S. sales tax laws.

About the Author: Sylvia F. Dion, MPA, CPA, is the Founder and Managing Partner of SALT Consulting firm, PrietoDion Consulting Partners LLC. Sylvia has been covering Internet Sales Tax developments for SalesTaxSupport’s Issues blog since 2011. Sylvia is also the “U.S. Sales Tax for Foreign Sellers” contributor for SalesTaxSupport’s Industry blog and the “Massachusetts Sales Tax” contributor for SalesTaxSupport’s State blog. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at sylviadion@prietodiontax.com or at 978-846-1641.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “U.S. Sales Tax for Foreign Sellers” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

44 Responses to U.S. Sales Tax for Amazon FBA International Sellers

  • Posted by Miguel on April 19, 2017 11:24am:

    Hello Sylvia,

    I'm from the Dominican republic, and am studying in the US with an F1 visa. I'm trying to get into selling on amazon as soon as possible. I have a us bank account and I have social as well. What would be the steps for me to start selling on amazon? I would like to meet all the requirements in terms of tax and so on. Would it be better for me to use services like payoneer ? thanks a lot for taking your time to answer

    • Posted by Author photo of Sylvia F. DionSylvia Dion on May 6, 2017 7:15pm:

      Miguel,
      Hello and thank you for reading my article and for your comment/question.

      First, I would strongly advise you to consult with an immigration attorney because there are some very strict requirements that you must comply with when you are in the US on an F1 Visa (basically, you cannot run your own eCommerce business - an immigration attorney can explain all of this to you). After resolving any issues with your F1 Visa (with your immigration attorney's help), then I would recommend contacting Amazon directly to find out how to go about getting set up to sell on Amazon.com. (Here is an FAQ that you might find helpful: https://services.amazon.com/selling/faq.htm) I advise Amazon FBA sellers with understanding their TAX obligations once they are already set up as a seller on Amazon. If you have tax questions once you are set up, please free to post them here at our blog.

      Thank you again for your comment/question.

  • Posted by Fred on February 10, 2017 6:30am:

    Hi Sylvia,
    Your blog is amazing! This kind of information about FBA is hard to find for foreign sellers, so thank you for your brilliant posts.
    My name is Fred and I'm a non-US foreign sole proprietor, setting-up my FBA account. I have understood (finally!) that I don't need to file a US federal tax return because I am not engaged in a US trade or business (I don't have any dependent agent or workers on US ground, just having inventory through FBA) and even if I were engaged, I don't have 'PE' in the US because my country, Belgium, has a tax treaty with the US. Great! I did understand too that I need an EIN for sales tax reporting purposes (no EIN means no sales tax license) and because it will make things 'smoother' to import products into the US (this applies to my freight forwarder and customs broker).
    So here is my question 1: After I receive my EIN through an international phone call with the IRS, will that force me to file or lodge a US federal return, such as 1040 NR, just because of the fact that I have an EIN?
    Question 2: You suggested in another article to fill form SS-4 'in a certain way'. So what should I choose as 'entity type' on line 9: sole proprietor (this requires a SSN which I don't have) or should I select the 'Other' box and specify that I'm a foreign sole proprietor?
    Question 3: On line 10 of form SS-4 I need to select a 'reason for applying'. So should I select 'compliance with IRS withholding regulations' or select 'Other' and specify something like 'sales tax reporting purposes'?
    Thank you,
    Fred

  • Posted by Gantas on January 10, 2017 9:51am:

    Hi Silvia,

    I am from EU, Lithuania. and have been selling on U.S amazon FBA for 2 years. During registration I have signed the W8-BEN form, I'm registered as Individual. Haven't done anything more considering taxes. Total revenue for last 2 years is about 5500usd, stopped selling because I have find out that I should pay sales tax. After lots of research, I have found that many sellers does not pay Sales tax (both USA residents and non-residents) My questions are:
    Will all these people eventually get away with it?
    Is voluntary disclosure is my best bet, if I want to deal with my past taxes?

    Does every state have voluntary disclosure program and Do I have to sign with all states where my nexus( or inventory) was in past 2 years?

    Best regards
    Gantas

  • Posted by Wilson on June 28, 2016 2:06pm:

    Hi Sylvia!!

    I love this blog, it has all I was looking for with regard to FBA-taxes :) The information you provide is very helpful and detailed. Thanks for sharing all this again.

    I was wondering if I could have your feedback with regard to my case.

    These are the facts:

    - I am planning to start a family business selling products in the U.S. through FBA - mainly importing products.

    - From my family, I am currently the only one that lives and works in the U.S. However, my work visa does not allow me to register other type of income. In that regard, I thought I could register one of my parents to be the owner of the business. Could this be done?

    - Everything will be managed/controlled from my home country. FBA account has been registered there too.

    My question is:

    Would you give direct advice to costumers/FBA sellers like us? If you don't, do you know any attorney that could help us to get all this right?

    My biggest concern is to fail in the process and put my family in real trouble with the U.S government.

    We would really appreciate it if you could give us your opinion on this regard.

    Se habla español tambien :)

    Gracias!
    Wilson

  • Posted by Deniz on June 22, 2016 11:53am:

    An excellent article. I'll definitely advice my clients to reach out to your company and learn more.

  • Posted by Martha on May 5, 2016 11:57am:

    Hi Sylvia, I've read the following information for international sellers in Amazon: IRS regulations require non-U.S. taxpayers to provide Form W-8BEN to Amazon in order to be exempt from U.S. tax reporting requirements.

    • Posted by Author photo of Sylvia F. Dionsylviadion on May 9, 2016 5:00pm:

      Martha,
      Thank you for your comment. If you are an international seller on Amazon.com, yes, you are required to complete a W-8BEN if you are an individual or a W-8BEN-E if you are an entity. Please note that the W-8BEN or BEN-E does NOT exempt you or your entity from U.S. tax reporting. You are still required to file the appropriate tax return that applies in your situation. The W-8BEN or BEN-E is so that Amazon does not withhold on payment that it makes to you/your entity.

      I hope this helps.
      Sylvia

  • Posted by Damo on April 13, 2016 3:32am:

    Hi Sylvia,
    All your posts are very informative.We are a new seller from India using Amazon FBA service to sell our products in US. We want to know whether we need to file Federal tax for our income in US, since we pay income tax in India.

    • Posted by Author photo of Sylvia F. DionSylvia Dion on April 24, 2016 8:54am:

      Damo,

      Thank you for reading my post and for your kind comment.

      Unfortunately, this is a highly complex topic and one that cannot be answered in a blog reply.

      What I can tell you is that generally a foreign (non-U.S. entity) that makes multiple sales of inventory to U.S. consumers via Amazon FBA would likely be considered to be engaged in a U.S. trade or business. The U.S. has the authority to tax your U.S. profits if your U.S. activity rises to the level of a U.S. Permanent Establishment (PE) - even if the same profits are taxed in India. However, the U.S. does have a tax treaty with India https://www.irs.gov/pub/irs-trty/india.pdf which, if invoked, may protect your U.S. profits from U.S. taxation.

      I suggest seeking the advice of a qualified tax advisor (in India or the U.S.) knowledgeable in international taxation for the proper advise. (I do advice clients in this area.)

      Thanks again! Sylvia

  • Posted by Sergei on April 12, 2016 6:13am:

    Hi Sylvia,

    What would happen if an international seller (from Germany) does not get an EIN number and does not collect sales tax from the various states and still sells with Amazon FBA?

    Would it make sense to test out my business plan (with Amazon FBA) for the first month or so and if it goes well, then I apply for an EIN number and start paying the sales tax?

    Thanks
    Sergei

    • Posted by Author photo of Sylvia F. DionSylvia Dion on April 24, 2016 9:10am:

      Sergei,
      Thank you for your comment. When you sell on Amazon.com and use the FBA service, you have created a "nexus" connection in the states where your inventory is located. This means you have a legal obligation to register, collect, report and remit (pay) sales tax. If a state discovers you were not registered and collecting, then you would be required to pay the taxes that were not collected plus penalty and interest. This is what CAN (but many not) happen. Many businesses (both U.S. and foreign) will start off "testing the waters"- but I always advise that they should know they are operating outside of the law and should very carefully monitor the "exposure" they are creating by not being registered. The longer you go without being registered, the more your exposure will grow.

      Hope this helps. If you have any other questions, please let me know.

      • Posted by Deniz on June 3, 2016 12:19pm:

        Excellent answer. A lot of international sellers are looing for this answer.

  • Posted by Samm on March 22, 2016 10:22am:

    Hi Sylvia,,

    Could you please tell me what implies having an EIN. I mean, I’m outside America and want to sell on amazon.com, so I am going to ask for an EIN, and I was wondering if US gov was going to send me taxes to pay because of this EIN??

    I already pay taxes for my business in my country (and I will continue to do it on my amazon.com revenues) but if I’m also taxed by US govnt it’s a bit tough…

    So getting an EIN is easy, I know, but what are the consequences as soon as you get one concerning taxes?
    Thanks a lot for your help

    • Posted by Author photo of Sylvia F. DionSylvia Dion on March 22, 2016 5:06pm:

      Samm,
      In another post I had explained how a foreign (Non-U.S.) seller that sells on Amazon.com and uses the Amazon FBA service will need to obtain a U.S. Employer Identification Number (EIN) if they will register with the states for a sales tax permit / business license. (See this post: http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-registering-sales-tax-us-ein/) When you register for an EIN, yes, this means the U.S. Internal Revenue Service (IRS) will require you to file a return. Whether you have to pay any U.S. federal taxes (this is not the same as the sales taxes), will depend on several factors like whether you are from a country that has a tax treaty with the IRS and whether the entity and you qualify for treaty benefits and the level of activity you conduct in the U.S. It is much more complicated than YES or NO they will require you to pay U.S. federal taxes. But, yes, it is possible that you will have to pay U.S. taxes on your U.S. profits from selling on Amazon.com. There is definitely a lot to consider.

      • Posted by Samm on March 23, 2016 3:43am:

        Thanks Sylvia, it seem complex. Since I'm in a foreign country and it's self-based declaration I think I won't botter with this and let it go :)
        Thanks for your time, and very informative website.

  • Posted by Chrissy on January 12, 2016 1:02pm:

    Hi Sylvia,

    Thanks for your informative posts!
    I'm a Canadian and am thinking of selling on amazon.com FBA. If I open up a US business bank account, does that create nexus in that state?
    Thanks,
    Chrissy

    • Posted by Author photo of Sylvia F. Dionsylviadion on January 22, 2016 8:54pm:

      Chrissy,
      Thank you for your comment. Keep in mind that our U.S. states are all individual governments - each with their own rules. While some states will say that having a bank account in their state will not create nexus, other states may say that it does. So, yes, possibly you could be creating nexus in a state by opening a bank account in that state.
      Thanks again!
      Sylvia

  • Posted by Pratik on June 1, 2015 11:27pm:

    Hi Sylvia,
    Thank you for your insightful articles.
    I am about to establish an LLP in UK to establish amazon business. I wished to know something regarding origin based and destination based state rules.
    - If I have inventory in origin based state and I sell to a destination based state, do I charge the customer the Origin based state's sales tax rate?
    - If I have inventory in destination based state and I sell inventory out of that state, do I have to charge sales tax based on the customer's location?
    I understand that selling in state in which I have nexus becomes easier from tax perspective as I have to charge that state/location's tax rate, but I am confused regarding what to do for the above mentioned situtions.
    Regards,
    Pratik

    • Posted by Sylvia on June 7, 2015 10:47am:

      Pratik,
      Thank you for reading my posts and for your question. You have brought up one of the most complex topics in U.S. sales tax - sourcing - which basically deals with determining which state a sale is "sourced to." Or put another way, which state gets to treat a sale as a sale to which their sales tax applies. Let's look at the easier one first - destination sourcing. If a sale is shipped to a customer in a destination state, then the sales tax that applies to that sale is the tax rate that applies in the specific location in the state where the goods are shipped to. Now, let's say that goods are shipped FROM an origin based sourcing state to a customer in A DESTINATION based state. Even though the goods are shipped from an origin based state, the destination location tax rate still applies. However if good are shipped WITHIN the same state and the state is an origin based state, then the rate in the location from which the goods are shipped applies. A good example is Texas, an origin based state. Goods shipped from Texas to a customer in South Carolina are taxed at the South Carolina state and local tax rate. But if the same goods where shipped from one location in Texas to a different location in Texas, the rate on that sale would be total rate in the SHIPPED FROM Texas location, not the location of Texas customer. Again, a very complex topic. Helping both U.S. AND international businesses understand how the U.S. sales tax laws apply to them is a main service of mine. If you are interested in consultation, please feel free to contact me at sylviadion@verizon.net.

      • Posted by Mira on January 6, 2016 12:35am:

        Dear Sylvia,

        Thank you for your post!
        I am so glad I found your blog and I would like to contact you for consultation in a next few days.
        Best regards

        Mira

  • Posted by Do on May 22, 2015 5:21am:

    […] Amazon FBA sellers. Because I wanted to address those many questions I wrote a blog post about U.S. Sales Tax for Amazon FBA International Sellers. In that post, I explained that using Amazon’s Fulfillment by Amazon (FBA) service creates a […]

  • Posted by Joe on February 10, 2015 12:55pm:

    Sylvia,
    Thank you for your posts!
    So I have come across a situation that I have not read on here so far. I have recently started a business, and at the advice of a friend who is an accountant, formed my LLC in delaware and will elect to be taxed as an S-Corp in Delaware.
    Now, those corporations registered in DE but who do not conduct business there do not have to pay state corporate income tax. However, I will be using FBA in my business, AND they will be shipping part of my inventory to Delaware. Does that mean that I am now dong business in DE and will have to pay state corporate income tax?
    Any help you can send my way would be very appreciated. Thank you!
    Joe

    • Posted by Author photo of Sylvia F. DionSylvia Dion on April 24, 2016 9:32am:

      Joe, Thanks for reading my post and your comment/question. While the focus of my blogging here at SalesTaxSupport is on sales tax (including on what foreign sellers need to know about U.S. sales tax), I also focus on state corporate income tax. The presence of inventory in a state is almost always a nexus creating activity for state corporate income tax purposes - and this is the case in Delaware. So based on your facts, you will likely have Delaware corporate income tax nexus. Note that Amazon FBA sellers whose inventory is stored and fulfilled from Delaware also have nexus for Delaware Gross Receipts purposes.

      Hope this helps. Any other questions, please let me know. Sylvia

  • Posted by Darren on January 23, 2015 7:55am:

    Dear Sylvia,
    Firstly, thanks for providing this valuable information on Amazon FBA tax which is often difficult to find. I have question to ask about incorporating an LLC. My business partner and I are from Australia and think of setting up an LLC in Wyoming. We noticed that Wyoming doesnt not have an Amazon FBA warehouse. Is this irrelevant, or should we setup the LLC in Nevada or Delaware which have FBA warehouses? Also I would like to get an idea of costs for you to help us register with all applicable sales tax states.
    Kind regards,
    Darren

    • Posted by Sylvia on February 7, 2015 2:17am:

      Darren, Thank you for reading my post and for your comment.
      First, regarding your question on where to form an LLC, if you plan to use Amazon’s Fulfillment-by-Amazon (FBA) service this will require you to warehouse your product inventory in a designated Amazon warehouse or warehouses. Currently Amazon has warehouses in Nevada and Delaware but not in Wyoming. (Amazon also has warehouses in Arizona, California, Florida, Indiana, Kansas, Kentucky, New Hampshire, New Jersey, Pennsylvania South Carolina, Tennessee, Texas, Virginia and Washington state - plus more to come.) Using Amazon’s FBA service creates a situation where you or your entity (the seller) are required to collect tax on sales that are made to customers in the Amazon warehouse state from which the order is fulfilled. This is because, in general, the various state laws say that if a company has inventory in the state and they use an agent to fulfill their orders, they have “nexus” - which means a sufficient connection to the state. Having that nexus with the state means the state has the legal power to require the seller to register and collect sales/use tax.
      I have not heard of any plans for Amazon to build a warehouse in Wyoming. So in general, if you can avoid creating a connection (nexus) to Wyoming, this may be the best approach to minimizing the possibility that you will need to collect Wyoming sales/use tax. (Note, some states take the position that incorporating or forming a legal entity in their state means the entity is subject to taxation in that state, while other states do not take that position.) Since Amazon currently has a warehouse in Delaware and Nevada, if your inventory is warehoused in and fulfilled from either of these states, your business will have nexus for sales/use tax collection purposes. Thus, forming an entity in Nevada or Delaware will not change whether your business will need to collect tax in these states as this requirement will already exists.
      Also regarding your question on state registration services - this is one of my main services (helping foreign (non-U.S.) Amazon FBA sellers get registered with the various states). I have sent you a direct e-mail with more information regarding these services and fees. If you have any additional questions, please feel free to contact me at sylviadion@verizon.net or at +1-978-846-1641.

  • Posted by International on January 7, 2015 9:00am:

    […] before I launch into today’s post, it’s important to quickly revisit my last post where I wrote about U.S. Sales Tax for Amazon FBA International Sellers.  In that post I explained […]

  • Posted by lindsay on November 24, 2014 8:55pm:

    Hi Sylvia
    My name is Lindsay and together with my business partner we have a llp in the uk. We have a website and purely though this we sell a toy train. we have lots of demand from people in the USA for our product and have sent over (currently in transit) one container load of inventory to fulfillment company in Ocala Florida. I understand that I have a nexus in Florida due to this stock. I got an EIN yesterday and I am now trying to register with the Florida tax org (myflorida.dor) but on the form it asks for the date that permission was granted from the Florida Dept of State for us to do business in Florida. I have gone onto the website for the above and it is $1000 to register. Do I need to do this? Is it something you can help with and how much would it cost please.
    Thank you for your help
    My kindest regards
    Lindsay

    • Posted by Sylvia on December 1, 2014 10:06pm:

      Lindsay,
      Good day! Thank you for reading my article and for your comment. Getting properly registered with the various states is a question many international clients have. The process isn't easy to handle from overseas as our states have rules that vary from state to state.
      But to answer your specific question - you are correct that you will need to register your UK LLP for Florida sales tax collection purposes. This is because your LLP will have nexus in Florida due to your inventory being stored in Florida and the company in Florida fulfilling your U.S. orders. This means you must register with Florida Department of Revenue (FDOR) – which is the process you started to complete. However, you do NOT need to register your LLP with the Florida Secretary of State (SoS). I have just last month registered one of my international Amazon FBA clients with the FDOR and confirmed that the Florida SoS registration is not required. One last note, obtaining the US EIN is a good start for registering your UK LLP, however, unless either you or your partner are US Citizens with a US Social Security Number (SSN) or you have applied for and received a US IRS issued Individual Tax Identification Number (ITIN) you will not be able to register online and will need to register via a paper registration form. I will send you a direct e-mail with more information about the process, how long it takes and my fees for this service. You can also reach me directly at sylviadion@verizon.net. Please don't hesitate to contact me with any questions.

  • Posted by Victoria on November 10, 2014 2:10am:

    sorry,to correct my sentence from above:
    .... If i let the ebay seller (located in California) ship the item directly to my customer in Alaska or Hawaii or some other state (also called dropshipping) then....

    • Posted by Sylvia on December 1, 2014 10:52pm:

      Victoria, Hello! Thank you for reading my article and for your comment (thank you for clarifying your question also). The first thing I will tell you is that the sales tax rules relating to drop shipping are some of the most complex rules you can deal with. When and whether a seller who uses a drop shipper is required to collect tax in the state in which the final customer is located is not always straightforward. So in this case, I am going to direct you to the Drop Ship Q&A Section here at SalesTaxSupport.com. (By the way, "Drip Ship" is one the most popular topics that visitors to SalesTaxSupport ask about.) Anyway, here is the link to the Drop Ship Q&A page.http://www.salestaxsupport.com/sales-tax-information/sales-tax-help-questions/drop-ship/ Towards the bottom of the page you will see a box with many questions that readers have submitted - clicking on the question will show you the response. Take a look at this page and the questions/answers that have been submitted - you will find some good information on drop shipping scenarios.

  • Posted by Victoria on November 10, 2014 2:07am:

    Dear Sylvia, great post!
    i am just wondering for example, if i would buy an article from ebay and let the seller send it to my customer directly...
    then ebay determines based on the state that my seller is located if i have to pay sale tax. For example, if the ebay seller is in california, i have to pay sales tax to that seller. So far, so god. But now my question: If i let the ebay seller ship directly the item in Alaska or Hawaii or some other state (also called dropshipping), then a) do i have to Charge my customer sales tax? b) if i dont Charge sales tax, did i fulfill my sales tax obligations by paying sales tax to ebay (who i suppose will forward the money on my behalf to the tax authorities) ?
    As an additional Information: I am a non-US resident and have no physical presence in the US.
    (but of course, according to your blog post, the ebay seller, who is helping me fulfilling the order from my US customer would be considered my Nexus , no ?)
    I would really be interested in your insight on this - rather unusual - Topic :) many thanks!

    • Posted by Author photo of Sylvia F. Dionsylviadion on January 24, 2016 8:44am:

      Victoria, Thank you for reading my post and for your comment. While I cannot give you specific tax or legal advice in a comment, I can give you general guidance.

      First, please note that the sales tax implications of drop ship situations can be very complicated. Here is a another post I wrote here at SalesTaxSupport that describes just how complicated drop ship situations can be: http://www.salestaxsupport.com/blogs/state/massachusetts/ma-exemption-certificates-drop-shipper-catch-22/

      Now for some general guidance. An online retailer is required to register for sales tax collection purposes in those states where the retailers has nexus. Additionally, the drop shipper (in this case, the eBay seller) is required to charge you sales tax on any orders they drop-ship to the retailer's (your) customers in states where the eBay seller has nexus. Because the retailer (you) are eBay's customer - eBay will charge you sales tax. This does not remove the retailer's (your) obligation to also charge the final customer sales tax. Again, take a look at the post on Sales Tax and Drop Shipments that I linked to. This will explain much more. Thanks again

  • Posted by Antonio on October 23, 2014 12:31pm:

    Thank you Sylvia for the answer,
    Since i won't have Nexus with any state, i will not have to register in those states i guess. Of course, i understand as a Nexus when there is a physical presence in other states.
    Please tell me how can you hep me with this
    Thank you Sylvia

  • Posted by antonio on October 15, 2014 5:38am:

    Dear Silvia, this is a great post for all foreign sellers, although I don't sell on Amazon, I have some concerns about taxes.
    I’m a foreigner from Dominican Republic who intends to form a LLC business in the state of Delaware; I was advised to choose this entity because my plan is to launch an online retail store (I’ll use a dropshipper services) and I’d like to be informed about what steps I should do and what don’t in this process.
    At least, I know I must file an Article of Organization to form the LLC Company, apply for the EIN (Required to open bank account)
    Regarding tax issues, please I need a real advice about how and when to file a withholding and gross receipts tax to its respective revenue department if this apply to my nature of my business of course.
    And since I won’t have employees and physical presence in US, I want to know if I may have some kind of tax reduction benefits from this. I’ve read about the option to elect LLC to be taxed as a S corp, is this true?
    Thanks

    • Posted by Sylvia on October 16, 2014 6:04am:

      Antonio,
      Buenas tardes! Gracias por su pregunta. Voy a ofrecer mi respuesta en Inglés, pero si necesita más explicación en español, por favor hágamelo saber.
      If you form an LLC in Delaware and plan to operate an on-line retail store, you will also need to register for a Delaware business license. First, you will also need to apply for a Federal Employer Identification Number (EIN) even if you have no employees. If you begin to sell to customers in different states, you might find that your LLC has a requirement to register with other states also (not just Delaware) even if your LLC does not have employees. (The EIN is necessary to register in most states.) Once you are registered, then you can file the returns that are due to the states through the state websites. This is a long process (Helping foreign companies register in the different states is a service I offer.)
      Some of your questions deal with actual tax planning (deciding what is the best structure) – and it is not possible to provide a short answer here about what is best for your situation. However, I will confirm to you that an LLC can elect to be treated as an association taxable as a corporation by completing and filing IRS Form 8832, Entity Classification Election. http://www.irs.gov/pub/irs-pdf/f8832.pdf If an LLC elects to be taxed as a corporation, the LLC can file IRS Form 2553, Election by a Small Business Corporation, http://www.irs.gov/pub/irs-pdf/f2553.pdf, to be treated as an S corporation. But again, this is highly complex decision that needs to be considered very carefully.
      I hope this was helpful. Please let me know if you have any additional questions.
      Saludos,
      Sylvia

      • Posted by Antonio on October 21, 2014 12:11pm:

        Thank you Sylvia,
        This information is really really helpful, even though i have some doubts.
        Remember this is will be a NEW LLC company, in fact i currently don't have a company in my home country, i believe this shouldn't be considered as a foreign company.
        Please Sylvia, I want to know more about this long process you mentioned of registering in every states. Do you mean register my LLC in every state like i will in Delaware or is it a different registration? also about this two forms (8832 & 2553)
        Thank again
        Antonio

        • Posted by Sylvia on October 22, 2014 5:29am:

          Antonio, Gracias por su nueva pregunta.
          Pensé que sería útil que mi respuesta fue en español también. Aquí lo tienes.
          En primer lugar, el proceso es el mismo, incluso si la empresa es una NUEVA LLC formada en Delaware. (Mencioné que ayudo a muchas empresas extranjeras, sino que también ayudo a muchas compañías de EE.UU. también). Su Delaware LLC tendrá que obtener una licencia comercial de Delaware y la LLC tendrá que pagar impuestos a Delaware también. Entonces, si la LLC tiene un "nexo" con cualquier otro estado, la LLC tendrá que registrarse con los otros estados también. Una vez registrado en los estados, usted tendrá que cobrar el impuesto sobre las ventas, presenter las declaraciones de impuestos de ventas y pagar los impuestos que se recaudan al estado o estados. Así que después de formar su LLC de Delaware (con la División de Corporaciones) también tendrá que registrarse con el Departamento de Impuestos / División de Finanzas: http://revenue.delaware.gov/ Si usted tiene que inscribirse en otros estados - cada estado es independiente. (No puedo saber con seguridad si usted tiene que registrarse - esto es algo que requeriría una consulta.) El proceso puede ir rápido en cada estado, o puede requerir diferentes formas y un montón de seguimiento. Si la LLC tiene un EIN, una dirección en Estados Unidos, y los funcionarios o propietarios de la LLC son ciudadanos de los Estados Unidos con número de Seguro Social, el registro puede ser rápido y fácil. Pero si no tiene todas estas cosas, entonces puede tomar mucho más tiempo.
          Formulario 8832 y 2553 son los formularios del IRS federales (estas no son de cualquier estado). Sólo tiene que completar y presentar el Formulario 8832 si usted desea cambiar la forma en que el IRS tratará su entidad. Por ejemplo, si crea una LLC y usted es el único dueño, la LLC se trata como una empresa unipersonal. Usted puede cambiar la forma en que el IRS tratará la LLC con la presentación del Formulario 8832, pero usted no necesita presentar el Formulario 8832. Si no presenta el Formulario 8832, entonces usted no tiene que presentar el Formulario 2253. Pero hay mucho que considerar aquí. Mi sugerencia es que consulte a un abogado de Estados Unidos o un contador que se especializa en esta área. (Mi área de especialización se ocupa de las leyes del Estado y los requisitos del Estado.)
          Espero que esto ayude.

        • Posted by Sylvia on October 22, 2014 5:07am:

          Antonio, Thank you for your new question.
          First, the process is the same even if the company is a NEW LLC formed in Delaware. (I mentioned that I help many foreign companies, but I also help many U.S. companies too). So your Delaware LLC will need to obtain a Delaware business license and the LLC will have to pay taxes to Delaware too. Then if the LLC has “nexus” to any other states, the LLC will have to register in the other states too and you will have to charge the customers in those states sales tax. You would also need to file sales tax returns and pay the taxes that are collected to the state or states. So after you form your Delaware LLC (with the Division of Corporations) you will also need to register with the Department of Revenue/Division of Finance: http://revenue.delaware.gov/ If you have to register with other states, then each state is separate. (I cannot know for sure if you have to register - this is something that would require a consultation.) The process can go quickly in each state, or it can require different forms and a lot of follow-up. If the LLC has a U.S. EIN, a U.S. address, and the officers or owners of the LLC are U.S. citizens with U.S. Social Security Numbers, then the state registrations can be easy and quick. But if the LLC does not have all these things, then it can take much longer.
          Form 8832 and 2553 are federal IRS forms (these are not state forms). You only have to complete and file Form 8832 if you want to change the way the IRS will treat your entity. For example, if you create an LLC and you are the only owner, the LLC is treated like a sole proprietorship. You can change how the LLC is treated by filing Form 8832, but you do NOT need to file Form 8832. If you do not file Form 8832, then you do not have to file Form 2253. But there is a lot to consider here. My suggestion is that you consult a U.S. lawyer or an accountant that specializes in this area. (My area of specialization is dealing with the State laws and the State requirements.)
          I hope this helps.

  • Posted by D.C. on September 2, 2014 1:41am:

    Dear Sylvia,
    Amazing article. Excellent structure and explanation, thank you. I will recommend your blog to everyone interested in this topic. Looking forwards to the next part.

  • Posted by RJ on August 20, 2014 2:43am:

    Dear Sylvia,
    Brilliant series! When can we expect the next two parts?

    • Posted by Sylvia on August 20, 2014 8:29am:

      RJ,
      Thank you for reading my post and your comment! 'll be starting the next part in the series in about 2 weeks. That next post will focus on some of the federal requirements for foreign sellers to obtain a U.S. Identification Number. As mentioned in the post, most (but not all) states which require such a number to register with their state. Foreign sellers that sell on Amazon will find they need to comply with some of these requirements also as Amazon has certain tax reporting requirements that they must comply with. (I'll explain much more in my next post in the series.) If this is a topic that you are interested in, please consider registering to receive blog updates.

      • Posted by Douglas on January 5, 2015 1:24pm:

        HI Sylvia,
        Thanks for this post. I looked for the next post but couldn't find it. Could you please post a link to it?
        Also, using FBA I understand that Amazon having a distribution center in a state would cause me to have a nexus in that state. But it seems to me that even in states where Amazon does not have a distribution center, if those states had a clause like this one from California, "Having a representative, agent, salesperson,... in California ... for the purpose of selling," that I would even have a nexus in those states because my agent Amazon is operating in those states via their website amazon.com! Does that sound right?
        Thanks,
        Douglas

        • Posted by Sylvia on January 14, 2015 12:08pm:

          Douglas,
          Thank you for reading my post and for your comment.
          First, here is the link to the next post:
          http://www.salestaxsupport.com/blogs/industry/us-sales-tax-for-foreign-sellers/international-sellers-and-u-s-sales-tax-registration/ The post, titled "International Sellers and U.S. Sales Tax Registration: 3 Key Issues" discusses more about registering with the various states for sales tax purposes.
          To answer your question, yes, nexus can be created by other activities - sending employees to a state to attend trade shows, sending sales agents to a state to solicit sales, etc. However, simply selling on Amazon's U.S. marketplace platform would not give you nexus in every state simply because Amazon's website is accessible in those states. So for an international FBA seller, the main nexus creating activities in the states are owning property in the state (goods inventory) and having your orders fulfilled from that states. Hope this helps.

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