Amazon FBA Tax Issues: Inventory Nexus, 1099-K, and What Sellers Actually Owe

Fulfillment by Amazon creates a sales tax nexus problem that most sellers never chose and often do not know exists: once inventory enters Amazon’s fulfillment network, Amazon’s own algorithm decides which warehouses hold it, and that inventory can end up sitting in a dozen or more states the seller never registered in. Several state revenue departments have taken the position that storing inventory in a warehouse on the seller’s behalf, even without the seller’s direct control over the location, is physical presence, and physical presence has always been enough to require sales tax registration regardless of sales volume. Add in the ordinary complications of an FBA business (1099-K reporting from Amazon, income tax nexus in the states where a seller has real economic activity, and cost tracking when inventory is commingled with other sellers’) and FBA is one of the more compliance-heavy ways to run an online store, even though it feels completely hands-off from the seller’s side.

Does storing inventory in Amazon’s warehouses actually create nexus?

Yes, in the view most states have taken, though the legal theory and the state’s enforcement posture both vary. When a seller enrolls in FBA, they ship inventory to an Amazon fulfillment center, and Amazon’s algorithm then redistributes that inventory across its network based on projected demand, without the seller choosing or even necessarily knowing where each unit ends up. The seller retains ownership of the inventory until it sells. Several states have concluded that owning inventory physically located in the state, even in a third party’s warehouse and even without the owner’s control over its exact location, is sufficient physical presence to require sales tax registration.

• This predates economic nexus and does not depend on sales volume. A seller could have a single unit of inventory sitting in a state’s fulfillment center and, under this theory, already have a registration obligation there, even with $0 in sales into that state that year.
• The Multistate Tax Commission ran a voluntary disclosure initiative specifically for this issue. In 2017, the MTC offered a limited-time amnesty program aimed at online marketplace sellers who had unknowingly created nexus through inventory stored in fulfillment centers, letting sellers register going forward without penalty for the earlier unregistered period, in the states that participated. That specific program has closed, but the underlying issue (inventory-based physical nexus) has not gone away, and standard state voluntary disclosure agreements remain available.
• Practical exposure depends on which states Amazon actually stored inventory in. Amazon provides an Inventory Event Detail Report and other reports through Seller Central that show historical fulfillment center locations for a seller’s inventory. Pulling this report is the starting point for understanding actual, not theoretical, exposure state by state.
• The full mechanics of how this interacts with economic nexus thresholds and marketplace facilitator collection duties are in E-commerce sales tax nexus.

Does Amazon’s marketplace facilitator status cover this for me?

Amazon collects and remits sales tax on marketplace transactions in every state that has a marketplace facilitator law, which by now is essentially every state that imposes a general sales tax. That solves the mechanical collection problem on Amazon sales themselves. It does not solve the separate question of whether the seller needs to be registered in a state at all, and it does not extend to a seller’s non-Amazon sales channels.

• Registration and collection are two different obligations. A state can require a seller to register even when Amazon is already collecting and remitting the tax on that seller’s marketplace sales, because the state wants visibility into the seller’s presence and total activity, and because some economic nexus thresholds are measured on gross sales including marketplace sales.
• Non-Amazon sales are not covered at all. A seller who also runs a Shopify store, sells wholesale, or lists on a platform that is not a covered marketplace facilitator in a given state is fully responsible for calculating, collecting, and remitting tax on those sales directly, regardless of what Amazon does on the Amazon side.
• The result for most FBA-only sellers: actual day-to-day sales tax collection is largely handled by Amazon. The open question is whether the seller needs a registration on file in states where inventory sits, and whether informational returns are required even at $0 in owed tax.

How does 1099-K reporting work for FBA sellers right now?

Form 1099-K reports gross payment volume processed through Amazon (or any third-party settlement organization) to the seller, and the reporting threshold has moved several times in the last few years. As of the current rule, the threshold is $20,000 in gross payments and more than 200 transactions in a calendar year, restored by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, which reversed the lower thresholds that had been scheduled to phase in.

• The original rule (pre-2022): $20,000 and 200 transactions, under IRC 6050W.
• The American Rescue Plan Act change: lowered the threshold to $600 with no transaction minimum, intended to take effect for the 2022 tax year, but the IRS delayed implementation multiple times.
• 2024 tax year (forms issued in early 2025): the IRS used a transitional threshold of $5,000 in gross payments, with no minimum transaction count.
• 2025 tax year forward (forms issued starting 2026), current rule: OBBBA restored the original $20,000 and 200-transaction threshold, and the IRS has confirmed this reversal applies going forward, with the dollar figure set to adjust for inflation starting in 2027.
• The 1099-K number is gross payment volume, not income. It includes the full sale price the buyer paid, before Amazon’s referral fees, FBA fulfillment fees, storage fees, or any refunds are subtracted. A seller who receives a 1099-K for $180,000 does not have $180,000 of taxable income; the actual profit is that gross figure minus cost of goods sold, Amazon’s fees, advertising spend, and other business expenses. Reconciling the 1099-K gross figure down to actual net income is a routine part of tax prep for an FBA business, and the IRS does compare the 1099-K total against the gross receipts reported on the return, so the reconciliation needs to be documented, not just assumed.

Does income tax nexus work the same way as sales tax nexus?

No, and this is a common point of confusion for FBA sellers. Income tax nexus (a state’s authority to tax a seller’s net income, not just require sales tax collection) generally requires more than the sales tax physical-presence test, and federal law provides some specific protection here that does not exist for sales tax.

• Public Law 86-272 protects a seller of tangible personal property from state income tax if the seller’s only in-state activity is soliciting orders that are approved and shipped from outside the state. This is a federal statute, not a state rule, and it predates e-commerce, but it still applies to online sellers whose in-state activity is limited to the kind of order solicitation the law was written to protect.
• Inventory storage complicates the P.L. 86-272 protection. The protection is generally understood to require that in-state activity be limited to solicitation of orders. Owning inventory physically stored in the state (as FBA inventory is) is an activity beyond mere solicitation, and several states, along with a multistate guidance document from the Multistate Tax Commission, have taken the position that FBA-style inventory storage can exceed the protection and expose the seller to state income tax, not just sales tax.
• Practical result: income tax nexus from FBA inventory is a live, evolving issue, not a settled one, and states have been more aggressive on the sales tax side than the income tax side so far. A seller with meaningful FBA sales volume should treat this as a question to review with a preparer familiar with multistate income tax apportionment, not assume that sales tax registration and income tax nexus are the same analysis.

How do I track cost of goods sold when my inventory is commingled with other sellers’?

Amazon’s FBA network pools inventory from many sellers of the same product under Amazon’s Fulfillment Network Stock Keeping Unit (FNSKU) system, but the seller’s own cost basis in each unit is tracked separately in the seller’s own books, not by Amazon. The commingling happens at the physical and logistical level; it should not happen in the accounting.

• Track cost by purchase order, not by physical unit. Since a specific physical unit shipped to a customer might not be the exact unit the seller originally sent in (commingled inventory pools identical SKUs across sellers), cost of goods sold should be calculated using an inventory costing method (FIFO or weighted average, most commonly) applied to the seller’s own purchase history, not by trying to trace a specific physical item.
• Reconcile Amazon’s inventory reports against your own purchase records monthly. Amazon’s Seller Central provides inventory reconciliation reports (units received, units sold, units returned, units lost or damaged in the fulfillment network) that should tie back to the seller’s own purchase order records. Discrepancies (inventory Amazon shows as lost or damaged) generate reimbursements that need to be tracked as separate income, not netted invisibly against COGS.
• Landed cost, not just unit cost, belongs in COGS. Freight from the manufacturer, customs duties on imported goods, and any prep or labeling fees paid before the inventory reaches Amazon are all part of the cost of the inventory, not separate operating expenses, and should be allocated into the per-unit cost basis. The full mechanics of landed cost and inventory costing methods are in E-commerce inventory accounting.

What should I do next?

Pull your Inventory Event Detail Report or equivalent from Seller Central to see which states your inventory has actually been stored in over the past year, and compare that list against your current state registrations. Reconcile your most recent 1099-K against your books to confirm the gross-to-net bridge is documented. If FBA is a meaningful share of your revenue, get a read on your income tax nexus exposure separately from your sales tax exposure, since the two follow different rules.

• E-commerce sales tax nexus: economic nexus, Wayfair, and multistate compliance, the full state-by-state threshold breakdown
• Shopify bookkeeping: chart of accounts and sales tax tracking, how to structure your books when you sell across Amazon and your own site
• E-commerce inventory accounting: COGS, FIFO vs. average cost, and UNICAP, costing methods for commingled and imported inventory
• Dropshipping tax treatment, the contrasting model where the seller never holds inventory at all

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.