Marketplaces are businesses that bring together multiple vendors under one roof or on a website, for example, Amazon and eBay.
Suppose a foreign company intends to sell physical products to the U.S., utilizing Amazon’s marketplace for distribution. The company utilizes Amazon’s fulfillment centers for warehousing and sells products to end consumers in Texas.
Using Amazon, which acts as a marketplace facilitator, can likely streamline sales tax collection.
Many States enforce Marketplace Facilitator laws that require platforms like Amazon to collect and remit sales tax on sales made by third-party sellers. This means the company is relieved from the responsibility of collecting sales tax directly from customers. However, it remains essential for the company to monitor where its products are sold and to ensure Amazon is complying with all applicable local tax laws.
Additionally, the company’s engagement with Amazon’s Fulfillment by Amazon (FBA) program can further complicate tax compliance. This program may lead to the company’s inventory being housed in multiple fulfillment centers across various states. The presence of inventory in these states can establish a sales tax nexus, obligating the company to adhere to each state’s sales tax laws.
For instance, the California Department of Tax and Fee Administration (CDTFA) states that if you have inventory stored in a third-party fulfillment center in California, you are considered engaged in business in the state due to your physical presence (inventory).
Therefore, it’s vital for the company to keep track of the locations of its inventory and to be well-informed about the tax obligations in those states.