Amazon FBA Warehouses in Pennsylvania Doesn’t Establish Physical Presence

The Commonwealth Court of Pennsylvania sided with the Online Merchants Guild as they pushed back on the Department of Revenue’s charges for taxes owed. The Online Merchants Guild is a group of online businesses who participate in Amazon’s Fulfillment by Amazon (FBA) Program.

It was determined that the Department of Revenue did not have enough evidence to prove that Out-of-State businesses selling merchandise through the FBA program had sufficient contacts with the Commonwealth that would warrant that they collect and remit sales tax. These out-of-state sellers had only one connection with Pennsylvania, that their merchandise was stored in an Amazon warehouse. This is not a choice that can be made by participants of the FBA program unless they participate in an inventory placement service. The FBA program also allows Amazon full control of the merchandise unless the merchant elects to withdraw its products from Amazon’s selling platform.

This battle within Pennsylvania has been taking place since 2012 when an initial agreement was made with Amazon and the DOR in which Amazon voluntarily agreed to collect and remit Pennsylvania sales tax on internet sales. The DOR has been seeking tax dollars from the FBA merchants since 2017. In 2018, Amazon and the DOR created an agreement that Amazon would collect and remit on behalf of their FBA merchants. This agreement also offered protection to Amazon for pre-2018 sales.

The DOR approached FBA merchants requesting payment for taxes owed and offered voluntary compliance programs to assist them in catching up on taxes owed. In 2021, a complaint was filed with the United States District Court for the Middle District of Pennsylvania stating that the DOR’s attempts to collect sales tax form the Guild members were a violation of their constitutional rights.

This is a BIG step for Amazon FBA participants and might lead a similar quake in other states that also house Amazon FBA warehouses across the United States. (Commonwealth Court of Pennsylvania, OMG v. Hassell Summary Relief Granted Order, September 9, 2022)

UPDATE: A Pennsylvania Department of Revenue (DOR) spokesman has stated that the DOR has chosen not to appeal the Commonwealth Court of Pennsylvania’s decision in this case. The DOR had 30 days to appeal the September 9, 2022 ruling. Pennsylvania DOR spokesman Jeffrey Johnson stated, “We are not going to file an appeal in this case because we believe it is limited to a unique set of facts with no broader applicability.” In order to comply with the court’s decision, Johnson said that the DOR will revise its business activity questionnaire that it uses to request information from retailers with a potential Pennsylvania tax responsibility. This is a very positive development for out-of-state Amazon FBA participants whose only connection to Pennsylvania is merchandise stored in an Amazon warehouse. It remains to be seen if other states will follow suit in stating that having Amazon FBA inventory in-state is not a nexus-creating activity for out-of-state Amazon FBA sellers.

Posted on October 13, 2022