Are Out-Of-State FBA Sellers Exempt From Sales Tax Collection In Pennsylvania?

Written by Monika Miles | Posted in Pennsylvania • Sales Tax Collections

Out-of-state FBA sellers in Pennsylvania may not need to collect state sales tax on sales made with their inventory.

In the beginning of September, FBA sellers, with the help of the Online Merchants Guild, secured a victory against the Pennsylvania Department of Revenue (DOR) when the Commonwealth Court determined that FBA (Fulfillment by Amazon) inventory is not sufficient to establish a sales tax collection requirement for nonresident FBA sellers. In this blog article, we explain what FBA inventory is, the background that led to this decision and what it means moving forward.

What Is An FBA Seller?

FBA is a service that allows businesses to outsource order fulfillment to Amazon. Businesses send products to Amazon fulfillment centers and when someone makes a purchase, the FBA workers pack and ship the order, take care of customer service and process returns.

What Sales Tax Obligations Do Out-Of-State FBA Sellers Have?

This question has been a long time coming. In 2012, an initial agreement was made with Amazon and the Department of Revenue (DOR) where Amazon agreed to collect and remit sales tax on direct sales. In 2018, when Pennsylvania’s marketplace facilitation laws went into effect, Amazon began collecting sales tax for third-party sales. They came to an agreement with the state that they would not be liable for third-party sales tax collection from sales made before the law was enacted.

It doesn’t appear this same agreement was made with FBA sellers, because as early as 2017, the DOR began to develop a strategy to collect sales tax from the sellers who had an inventory presence in the state. In 2021, the DOR sent FBA merchants a Business Activities Questionnaire Request stating that inventory in the state created a physical presence, resulting in tax obligations.

On September 9, 2022, the Commonwealth Court of Pennsylvania determined FBA inventory does not establish a sales tax collection requirement for nonresident FBA sellers.

One of the arguments made by the Online Merchants Guild that may have led to their success is that a merchant loses control over their merchandise as soon as it enters the Amazon Fulfillment system, which means that they don’t have any authority over where it goes.

This is a big step for FBA sellers and may lead to changes in the over 20 other states that have FBA warehouses and marketplace inventory sales tax obligations.

One important thing to note is that this ruling is for sales tax. Taxpayers in Pennsylvania (and other states) must still consider whether inventory in the state creates a taxable presence (nexus) for income tax and requires a company to file income tax returns.

Do You Have Other Sales Tax Compliance Questions?

Contact Monika Miles Consulting And Team

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.