A Washington State appellate court found that two sellers were responsible for sales tax and business and occupation (B&O) tax on sales made through Amazon’s Fulfillment by Amazon (FBA) program. The case is the consolidated case of S&F Corporation and Orthotic Shop Inc. v. Department of Revenue, No. 39321-6-III (January 23, 2024).
The decision dealt with tax periods prior to Washington’s implementation of marketplace rules requiring marketplace facilitators to collect and remit sales taxes. Those rules became effective January 1, 2020. However, the decision contains important reminders for e-commerce sellers that use marketplaces such as Amazon.
First, use of a marketplace does not eliminate a merchant’s responsibility for B&O tax in Washington. Under both prior and current law, marketplace sellers are responsible for reporting B&O tax even if the marketplace facilitator collects and remits sales tax. Washington implemented economic nexus thresholds for B&O tax effective January 1, 2020. Merchants with a physical presence in the state and remote sellers with more than $100,000 in sales into Washington must report B&O tax as well as applicable sales taxes.
Second, the case is a reminder that use of Amazon’s FBA program may create physical nexus in a state. FBA sellers use Amazon warehouses to store goods prior to sale. Many states, including Washington, take the position that use of such warehouses creates physical nexus. Here, the court noted that the contract between the merchants and Amazon directly stated that use of Amazon fulfillment centers could create tax nexus. Ignorance of the tax implications of this arrangement was not an acceptable defense.
Marketplace rules do not eliminate the tax responsibilities of marketplace sellers. Sellers must carefully track where they have established nexus, the type of nexus established, and the imposition of gross receipts type taxes (such as Washington’s B&O tax) in addition to sales taxes. Please reach out to the Ryan experts listed below if you have concerns that you have established nexus in a jurisdiction and have not yet remitted the taxes that may be due.
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