What taxes do Amazon FBA sellers owe? Inventory states, sales tax, franchise tax, inventory costs and tariffs

Most FBA sellers deal with five at once: federal income tax, self-employment tax, state income or franchise tax, sales tax and import duties. Different agencies collect them and different people pay them: Amazon collects most of the sales tax, the importer pays duties, and the rest you report yourself. Get this map straight first and the rest falls into place.

For reconciling Form 1099-K to Amazon's reports, see our guide at yclcpa.com/1099k; we won't repeat it here.

Description: Each row is a tax; left to right are the collecting agency, when it applies, who pays, and what the seller has to do.

Tax	Collected by	When it applies	Who pays	What the seller does
Federal income tax	IRS	Whenever there's net profit	The seller (individual or entity)	Schedule C for individuals and single-member LLCs; Form 1120, 1120-S or 1065 for entities; quarterly estimates
Self-employment tax	IRS	Net profit of an individual or single-member LLC	The seller	92.35% of net profit × 15.3% (Social Security portion capped at $184,500 of earnings in 2026); S corporations pay payroll tax on wages instead
State income or franchise tax	State revenue departments	Your home state; states where you have inventory, employees or receipts over a threshold	The seller	Work out nexus state by state and file; Texas, Washington and others tax gross receipts or margin
Sales and use tax	State revenue departments	Sales to customers in states with a sales tax	Marketplace sales: Amazon collects and remits; your own site and wholesale: you	Register, collect and file where your own-site sales create nexus; collect resale certificates; register in some inventory states
Import duties and tariffs	U.S. Customs and Border Protection	When goods are imported	The importer of record	Confirm who the importer is; capitalize duties into inventory; keep entry documents
Information returns (not a tax)	IRS	Amazon issues 1099-Ks; foreign-owned single-member LLCs file Form 5472	Amazon; the foreign owner	Reconcile the 1099-K; file the pro forma 1120 with Form 5472 every year

Because the inventory is your property, and wherever it sits, you have a physical presence. Amazon places goods in warehouses across states to suit its logistics, often without telling you in advance. Physical presence doesn't depend on a sales threshold, so FBA sellers often have nexus in states they never thought about.

• Find out where your goods are. Download inventory reports from Seller Central (such as the Inventory Ledger, which can be viewed by fulfillment center), map fulfillment center codes to states, and keep a monthly or quarterly list of inventory states.
• What nexus brings: a state where you have nexus may require sales tax registration, income or franchise tax returns, or annual reports. Every state is different, and a state's sales tax test can differ from its income tax test.
• Inbound placement: Amazon can split a shipment across several warehouses and charges a fee if you choose fewer inbound locations. That changes how many states hold your goods, but not the principle that inventory in a state creates nexus.
• Start with a table. Each year, list your inventory states, sales by state (marketplace and non-marketplace separately) and any employees or agents, then decide state by state.

All 45 states with a sales tax and DC have marketplace facilitator laws, so Amazon collects and remits sales tax on marketplace sales for you. Sales outside the platform (your website, wholesale, in person, or other platforms that don't collect) are yours to handle, and some states still require sellers with inventory to register or file even when every sale goes through Amazon.

North Carolina as an example (for the full North Carolina sales tax rules, see yclcpa.com/salestax):

• Amazon collects: since February 1, 2020, marketplace facilitators doing business in North Carolina collect and remit tax on marketplace sales.
• Marketplace-only with no physical presence in North Carolina: the NCDOR's FAQ says a seller doesn't need to register or file if the facilitator collects on all its sales.
• With a physical presence in North Carolina: the NCDOR's FAQ says a seller with a physical presence that owes its own use tax must register and file, and North Carolina lists maintaining a warehouse or inventory in the state as one way of being engaged in business there. The NCDOR doesn't say directly whether FBA inventory always counts as the seller's own physical presence, so it turns on the facts.
• Marketplace plus direct sales: if you're engaged in business in North Carolina, or your North Carolina sales across all channels pass $100,000, you collect tax on your direct sales. On Form E-500, line 1 reports all North Carolina sales (marketplace included) and line 2 deducts the marketplace-facilitated sales.
• Wholesale to retailers: get a completed exemption certificate (such as Form E-595E), or the sale is treated as taxable.
• Another state's approach: Washington requires marketplace sellers with nexus to report and pay B&O tax even when they sell only through a marketplace, and a physical presence there (including inventory) creates nexus regardless of the $100,000 threshold.

Quite possibly. P.L. 86-272 protects only one situation: your in-state activity is limited to soliciting orders for tangible goods, with orders approved and shipped from outside the state. Inventory in an in-state warehouse generally goes beyond that. And it covers only taxes on net income, not sales tax or gross receipts taxes like the Texas franchise tax and Washington B&O tax.

• Go state by state. The same inventory can create nexus in one state and not another, and states treat corporations and LLCs differently.
• Income is apportioned: most states assign sales to where the customer is, so sales to customers in a state count as that state's income.
• Individual sellers too: some states require nonresident individual returns from single-member LLC or sole proprietor sellers. The amounts are often small, but it needs to be checked.
• Coming forward: if you find you should have filed for past years, a state voluntary disclosure program usually means fewer years and waived penalties.

Inventory isn't deducted when you buy it. What you pay goes on the books as inventory, and only what sells becomes cost of goods sold. Inventory cost generally includes the purchase price, the freight to get the goods to you (ocean or air freight and delivery into Amazon's warehouses), tariffs and other duties, and customs brokerage. FBA fulfillment fees, storage fees and advertising aren't inventory costs; they're deducted as current expenses.

• Generally capitalized into inventory: factory price net of discounts, international freight and insurance, duties and tariffs, customs brokerage and clearance, freight from the port or a third-party warehouse into Amazon.
• Current expenses: referral fees, FBA fulfillment fees, monthly and aged inventory storage fees, advertising, removal and disposal fees, software and returns processing.
• Simplified methods for small businesses: if your average gross receipts for the prior 3 years are $32,000,000 or less (the 2026 threshold), you can skip UNICAP and treat inventory as non-incidental materials and supplies or follow your books. Under any method, the cost is deducted when goods are sold or used, not when they're bought.
• Year-end count: goods in Amazon warehouses, third-party warehouses and in transit on December 31 are all ending inventory. Check quantities and costs against Amazon's inventory reports, shipping documents and invoices.

Example (hypothetical numbers, to show the method): a seller brings in 10,000 units in 2026.

Deducting only the $100,000 of factory invoices would miss $35,500 of freight, duties and brokerage. Deducting the full $135,500 in the year of purchase would also deduct the $40,650 of goods still unsold. Neither is right.

When Amazon pays you for inventory lost or damaged in its warehouses, the reimbursement is income. The cost of those lost or destroyed units is no longer in ending inventory, so it flows into that year's cost of goods sold. Removal and disposal fees are current expenses. Units returned to you for your own handling are still your inventory.

• Reconcile reimbursements separately. Pull the reimbursement transactions out of the settlement reports and tie each one to the units involved, so you don't book the income while leaving the cost in inventory.
• Disposals and liquidations: units you have Amazon destroy or dispose of should match Amazon's removal reports, with their cost taken out that year.
• Donations: units donated through Amazon's program generally leave inventory that year. Whether a separate charitable deduction is available depends on the entity and the rules, and you can't deduct the same cost twice.
• Customer returns: sellable returns go back into inventory; unsellable ones are handled as removals or disposals.
• Write-downs: slow-moving, out-of-season or damaged goods can be written down under the rules when you have evidence to support it.

Directly. Tariffs raise your inventory cost, which you deduct through cost of goods sold as goods sell, not all at once in the year you pay. The $800 de minimis exemption is suspended, so small parcels pay duty too. The legal basis for tariffs changed several times in 2026, so check current rates against U.S. Customs and Border Protection (CBP) and the U.S. Trade Representative (USTR).

Description: Read top to bottom in time order; the last column is the impact on FBA sellers. Rates change often, so check CBP and USTR for the latest.

Date	What happened	Status	Impact on sellers
May 2, 2025	De minimis (under $800) ended for goods from mainland China and Hong Kong	In effect	Higher cost for direct-mail parcels and overseas-warehouse shipments
July 4, 2025	The One, Big, Beautiful Bill repealed the statutory basis for de minimis effective July 1, 2027	Enacted, effective July 1, 2027	De minimis won't come back
August 29, 2025	De minimis suspended for all countries	In effect	All imports go through entry and pay duty
February 20, 2026	The Supreme Court held that IEEPA doesn't authorize the President to impose tariffs; IEEPA tariffs ended	Decided	IEEPA duties already paid can be refunded
February 24 to July 24, 2026	A temporary 10% surcharge under Section 122, which expired after 150 days	Expired; related litigation ongoing	Goods imported in that window carry that cost
From April 20, 2026	CBP processes IEEPA refunds through the CAPE function in ACE	Ongoing	Only the importer of record or its customs broker can file
June and July 2026	CBP wrote the de minimis suspension into its regulations (non-postal June 24, postal July 24)	In effect	Small parcels need formal or informal entry
From July 24, 2026	Tariffs on many countries imposed under Section 301 and other authorities; existing Section 301 tariffs on China and Section 232 tariffs remain	In effect, subject to change	Look up rates by country of origin and product

• Tariffs go into inventory cost. The portion for goods already sold goes into this year's cost of goods sold; the portion for goods still on hand stays in ending inventory until they sell.
• IEEPA refunds: for goods already sold, a refund is generally income or a reduction of cost of goods sold in the year received; for goods still on hand, it reduces inventory cost. The exact treatment depends on the amount and the timing.
• Who the importer is matters. Under DDP terms where the supplier or forwarder is the importer of record, the duties are theirs and only they can claim a refund; you can only settle up with them under your contract.
• Keep the entry documents. Each shipment's entry summary, duty payment record and forwarder invoice support your inventory cost and any refund.

In Amazon's tax interview, a foreign individual submits Form W-8BEN, a foreign company W-8BEN-E, and U.S. persons, U.S. corporations and multi-member LLCs W-9. Whether a foreign seller with goods in U.S. FBA warehouses is engaged in a U.S. trade or business, with effectively connected income (ECI), depends on the facts. If there's a tax treaty, the question is also whether there's a permanent establishment.

• Foreign-owned single-member LLC: disregarded for tax, so the foreign owner provides the W-8. But the LLC still files a pro forma 1120 with Form 5472 every year, and each missed form carries a $25,000 penalty (see yclcpa.com/5472).
• Facts that matter: U.S. employees, offices or agents; who negotiates contracts and sets prices; where title passes; whether you're simply using someone else's warehouse to store and deliver goods.
• Tax treaties: U.S. treaties, including the one with China, generally say that using facilities solely to store, display or deliver goods isn't a permanent establishment. A foreign company that qualifies may not owe U.S. tax on its business profits, but may need to disclose its treaty position on a return.
• Protective filing: when the answer is uncertain, some foreign companies file a timely protective Form 1120-F to preserve the right to deduct expenses later. Whether it makes sense depends on the case.
• Sellers living in the U.S.: citizens, green card holders and other tax residents report worldwide income, whatever country the company or account is in; a company in China may also call for Form 5471, and accounts in China for an FBAR.

Starting out with modest profit, filing Schedule C as a sole proprietor or single-member LLC is simplest. With steady, higher profit, an S corporation election can help: you pay yourself a reasonable salary, and the remaining profit isn't subject to self-employment tax. For outside investors, retained earnings or foreign shareholders, look at a C corporation. No single answer fits everyone; it depends on profit, shareholders and state taxes.

• The 20% qualified business income deduction: sole proprietors, LLCs and S corporation owners who qualify can deduct 20% of qualified business income, and the 2025 law made the deduction permanent.
• Details on the S election: when to elect and how to set a reasonable salary are in our guide at yclcpa.com/scorp; which state to form an LLC in is at yclcpa.com/llc.
• Factor in state taxes. Some states charge LLCs and S corporations franchise or minimum taxes, and the more states your inventory sits in, the more the entity choice matters.

Start with your entity, the states where your inventory sits and whether you sell anywhere besides Amazon, then find your situation below.

• Situation A: sole proprietor or single-member LLC selling only on Amazon. File Schedule C and self-employment tax, list your inventory states, check Texas, Washington and similar states for filing duties, and include freight and duties in inventory cost.
• Situation B: Amazon plus a Shopify store. Amazon collects marketplace sales tax; your own store needs registration, collection and filing in states where it has nexus. Reconcile income and inventory for each channel separately.
• Situation C: you also sell wholesale. Collect resale or exemption certificates from your buyers. Amazon doesn't collect tax on wholesale sales, so follow each state's rules.
• Situation D: you're the importer and paid a lot in duties. Capitalize duties into inventory. If you paid IEEPA duties, ask your broker about a CAPE refund, and book any refund based on whether the related goods have sold.
• Situation E: a foreign seller or a foreign-owned U.S. LLC. Confirm whether you gave Amazon a W-8 or W-9. A foreign-owned single-member LLC files Form 5472 every year. Whether U.S. inventory creates U.S. income tax depends on the facts and any treaty.
• Situation F: profit is up and you're thinking about a different entity. Compare Schedule C with an S or C corporation, including state taxes and payroll costs, before deciding on an S election.