Does using Amazon FBA create income tax nexus to states where it stores my inventory?
1 attorney answer
Having inventory in a state MAY create taxable nexus but you will need to research each state to determine whether you have triggered nexus. California imposes a franchise tax on the net income of every corporation doing business in California for the privilage of exercising its corporate franchise in the state. (Rev. & Tax. Code sec. 23151(a)) California also imposes an income tax on every corporation NOT doing business in the state but which derives income from sources or activities carried on in California. "Doing business" is defined as actively engaging in any transaction for the purpose of financial or pecuniary gain or profit. (Rev. & Tax. Code sec. 23101(a)) Even a single profit-motivated transaction during the taxable year is "doing business" in California; and, nexus is created even if the transaction does not produce any revenue for the corporation. In 2011, California adopted a "facto-based" nexus standard. It provides that a corporation is doing business in California IF any of the following thresholds are met: (1) the entity is organized or commerically domiciled in the state; (2) the taxpayer's sales in California exceed the lesser of $601,967 or 25% of the taxpayer's total sales; (3) the taxpayer has real property and tangible personal property in CA that exceeds the lesser of $60,197 or 25% of the taxpayer's total real and tangible personal property; or (4) the taxpayer paid compensation in CA that exceeds the lesser of $60,197 or 25% of the toal compensation paid by the taxpayer. These dollar figures were lower in earlier years but they increase with inflation each year. Once California adopted these thresholds, other states took notice so you will have to research each state or have a tax professional do that for you. Good luck!