Bi-Coastal Nexus Decisions Target Amazon

Two recent nexus decisions―one from each coast―underscore how states continue to scrutinize nexus in the context of online retailers. One case involves sales and use tax, while the other addresses corporate franchise tax. In one decision, the South Carolina Supreme Court concluded that for periods before the adoption of a marketplace facilitator law, the operator of Amazon.com was required to collect and remit tax on sales of products by unaffiliated merchants that listed their products on Amazon.com.¹ In California, the Office of Tax Appeals (OTA) held that a third party that made online sales through Amazon had nexus based on inventory held in the state in an Amazon warehouse during the tax year.² The decisions are notable in that they represent state efforts to assert nexus based on traditional doing business or engaged-in-business provisions―and not marketplace facilitator or factor-presence laws―and illustrate an exposure concern for taxpayers that have not filed returns.

South Carolina: Amazon Services Doing Business in the State

Amazon Services, LLC (“Services”) is an Amazon subsidiary that operated Amazon.com. Starting in 2016, Services began collecting and remitting tax on its own sales and sales of its affiliates made on Amazon.com but not on the items sold by unaffiliated merchants on Amazon.com.

During the audit period, South Carolina’s sales tax was imposed on every person engaged in the business of selling tangible personal property at retail in the state. The court explained that a person is engaged in the business of selling when they are integrally involved in a sale to obtain a gain or profit, either direct or indirect.

After reviewing the agreements between the unaffiliated merchants and Services, the court concluded that the involvement of Services was integral to every third-party transaction. The court noted that Services had comprehensive control over third-party transactions that was so significant that these transactions could not occur on Amazon.com without Services’ actions. Thus, Services was engaged in the business of selling and was required to collect and remit the sales tax on the products sold by the unaffiliated merchants.

California: Retailer with Inventory in California Amazon Warehouse Had Nexus

Fishbone Apparel, Inc. (“Fishbone”) is a Pennsylvania-based corporation that made online sales of apparel through Amazon. During the taxable year at issue, Fishbone participated in the Fulfillment by Amazon (FBA) program, under which it contracted with Amazon to hold and ship inventory from Amazon warehouses (fulfillment centers) to customers in various states.

In 2018, Fishbone, deemed a retailer engaged in business in California, filed state sales and use tax returns and submitted the required payments. Subsequently, the issue arose as to whether Fishbone had nexus for state franchise tax purposes.

“Doing business” is defined under R&TC, § 23101(a) as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” In addition, in 2011, California also adopted factor-presence nexus standards [R&TC, § 23101(b)].

The Franchise Tax Board (FTB) argued that sales to in-state customers and participation in Amazon’s FBA program were sufficient to incur franchise tax nexus because of storage of inventory in the state. This argument is based on § 23101(a), actively engaging in any transaction for gain or profit. Fishbone filed sales and use tax returns and, during the tax year, held inventory in and made sales to California. The OTA agreed with the FTB’s determination that Fishbone had nexus with the state and, in this instance, was required to pay the minimum franchise tax of $800 for the year.

Ryan’s Take and Action Steps

As for South Carolina, starting in 2019, there is no question as to Services’ liability. South Carolina, like many other states, established sales and use tax collection requirements on “marketplace facilitators.” However, this decision leaves open pre-2019 periods for which Services did not collect. Also, this leaves the door open for potential exposures for other non-filers. Typically, there is no statute of limitations for non-filers. Thus, taxpayers whose activities mirrored those of Amazon Services, including those that were highly integrated into or essential to sales by unaffiliated sellers, should review their operations for pre-2019 periods.

In California, the decision, which triggered a filing requirement and payment of the $800 minimum franchise tax, serves as a reminder that nexus may be established without consideration of the state’s factor-presence nexus standards. The nexus tests are independent of one another. Arguing nexus under the actively engaging-in-business provision gives the FTB more interpretive leeway in making a determination, as opposed to the clearly defined factor-presence thresholds. The OTA decision serves as a reminder that companies with separate indirect tax and income/franchise tax functions need to communicate the amount of sales made and tax collected. More importantly, this decision could potentially impose a significant burden on retailers participating in Amazon’s FBA program.

If your business is affected by either of these decisions, please contact the Ryan specialists listed below.

¹ Amazon Services, LLC. v. South Carolina Department of Revenue, SC Sup. Ct., No. 28319 (March 18, 2026).

² In the Matter of the Appeal of Fishbone Apparel, Inc. OTA Case No. 230212546 (December 29, 2025, released March 2026).

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