Online retailer using Fulfillment by Amazon (FBA) does not have nexus in Pennsylvania for sales and use tax and personal income tax

The Commonwealth Court of Pennsylvania has held that a non-Pennsylvania business that is utilizing the Fulfillment by Amazon Merchant Program (FBA) and whose only connection to Pennsylvania is the storage of merchandise in an Amazon warehouse located in Pennsylvania does not have sales and use tax or personal income tax nexus (Online Merchants Guild v. Hassel, No. 179 M.D. 2021, September 9, 2022). 

The presence of inventory held for sale in a state by a merchant constitutes a physical presence in the state for sales and use tax and income tax nexus. However, in Online Merchants Guild, the Commonwealth Court concluded that a FBA Merchant does not have sales and use tax or personal income tax nexus because it has no control over the location of its inventory after Amazon has taken possession of the inventory. After merchandise of a FBA Merchant is sold by Amazon to an Amazon customer, Amazon collects payment for the merchandise and packages and ships the merchandise to the customer.  

Based upon this type of arrangement with Amazon, the Commonwealth Court indicated that it was difficult to see how a FBA Merchant “has availed itself of the Commonwealth’s protections, opportunities, and services” (Online Merchants Guild). 

The Amazon FBA Merchant Program has fulfillment warehouses in 20 states with 10 locations in Pennsylvania. With such a significant presence of warehouses in Pennsylvania, the Online Merchants Guild decision may have far-reaching nexus implications in other states.  

We should note that it is anticipated that the Department of Revenue will appeal the Online Merchants Guild decision to the Pennsylvania Supreme Court.  

For additional information on the Online Retail Guild decision and how it may impact your business or to discuss any other state or local tax issue that may be impacting your business, please contact a member of the Baker Tilly state and local tax team. 

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.