Do new Arizona letter rulings affect Amazon FBA sellers?
by November 1, 2023
Please note: This blog was originally published in 2019. It’s since been updated for accuracy and comprehensiveness.
Arizona issued two new letter rulings that appear to hold some good news for Amazon FBA sellers. (Thanks to Chris Stout and George Sleeman for bringing this to our attention.)
In summary, the rulings appear to state that online marketplaces (like Amazon) and not 3rd party sellers who use those marketplaces (like FBA sellers) are liable to collect and remit Arizona’s Transaction Privilege Tax (TPT).
You can take a look at the new Arizona letter rulings here:
This potentially means that FBA sellers who do not live in Arizona, but who currently have nexus in Arizona due to inventory stored in an Amazon fulfillment center, would not be responsible for collection and remitting Arizona’s TPT.
Quick summary of the Arizona letter rulings
Instead of a traditional sales tax, Arizona has what is known as “transaction privilege tax” (TPT). This tax is levied on businesses for the privilege of doing business in the state of Arizona, but businesses are allowed to pass it on to their customers.
In letter ruling TPR 16-1, item #8 talks about a scenario that will look very familiar to Amazon FBA sellers. The ruling states that a marketplace that sells items and also allows 3rd party sellers to sell items, and also has a fulfillment center in Arizona, has nexus in Arizona.
TPR 16-3 goes on to state that when a marketplace acts on behalf of 3rd party sellers (as Amazon does with Amazon FBA) then the marketplace is responsible for the transaction privilege tax.
Taken together, this looks compellingly like Arizona has ruled by letter that Amazon, and not Amazon FBA sellers, are responsible for remitting TPT in Arizona.
I’m registered and collecting TPT in Arizona. Now what?
Note: The following information applies to Amazon FBA sellers who have nexus in Arizona due to inventory stored in an Arizona Amazon fulfillment center but do not live or have other nexus-causing activities in Arizona. Always contact a sales tax expert for specific advice regarding your company’s sales tax liability.
Right now, Amazon’s policy is not to collect sales tax on 3rd party sales to Arizona buyers. Their policy is to allow FBA sellers to handle this situation by either registering and collecting TPT or not doing so. But Amazon does not currently collect or remit sales tax on behalf of 3rd party sellers. This policy seems to contradict the two Arizona letter rulings mentioned above.
We can’t give you tax advice specific to your business. How you run your business – and whether or not you collect Arizona’s transaction privilege tax – is totally up to you. But our thought on this one is to be cautious and consult a sales tax pro before you immediately cancel your Arizona sales tax registration.
To help us come to this conclusion, we contacted our trusted advisor Michael Fleming of Peisner & Johnson and this is what he had to say:
“Based on the current unknowns, we would advise our clients to take the conservative course, which is to continue collecting or begin collecting and then remitting tax on all Amazon sales until Amazon changes their policy and begins collecting and remitting on behalf of FBA sellers. Based on the facts as they currently stand, we believe there could be some potential risk for sellers, if Arizona reverses their position, due to non-compliance from Amazon.
In addition, both letter rulings strengthen the argument that Amazon creates nexus for FBA sellers. So for those sellers selling on multiple platforms, even if Amazon begins to collect and remit on a seller’s behalf, there may be the responsibility to collect and remit sales tax on the other platforms depending on each platform’s business model.”
It’s up to you to do your research, consult with your advisors and/or the Arizona Department of Revenue, and determine whether you will cancel your Arizona TPT registration and stop remitting sales tax, or take a more cautious approach and continue collecting TPT from Arizona buyers until Amazon responds to this ruling and begins collecting TPT from the customers of 3rd party sellers.
