Making Member's Mark Products for Sam's Club: Does a Chinese Factory Owe U.S. Tax?

A Chinese factory that produces in China and sells FOB (or on similar terms) into Walmart's buying system, with the buyer as importer and no U.S. office, employees or agents who habitually sign contracts for it, generally has no U.S. permanent establishment under the U.S.–China treaty, so those business profits aren't subject to U.S. income tax; it gives a W-8BEN-E at onboarding. If it sets up a U.S. subsidiary that imports and delivers in the U.S., the subsidiary's profit is taxed in the U.S., and Form 5472 and transfer pricing come with it.

What is Member's Mark, and where does the factory fit?

Member's Mark is Sam's Club's private brand. The products carry the Member's Mark name, Sam's Club sets the specs, formulas and packaging, and a member community tests them; it passed 150,000 participants in May 2026. Food and beverage follow a Made Without list: in the first half of 2026 Sam's Club said 100% of Member's Mark food and beverage had dropped more than 40 ingredients, excluding sports nutrition and OTC products.

For the factory this is a purchase contract. You make goods to order and sell them to Sam's Club, part of Walmart; you are not opening a store on Sam's Club. Walmart's supplier onboarding has two tracks, domestic suppliers and direct import suppliers, and a Chinese factory onboarding on its own is usually the second.

Selling direct: why there is generally no U.S. income tax

Source follows production

IRC §863(b) says income from selling inventory the taxpayer produced in one country and sold in another is allocated between U.S. and foreign sources solely on the basis of the production activities. That is the post-2017 rule, effective from 2018. A factory producing in China earns foreign-source income on its sales to U.S. buyers.

Treaty: no permanent establishment, no U.S. tax on business profits

Under the U.S.–China income tax treaty, the U.S. can tax a Chinese enterprise's business profits only to the extent they are attributable to a U.S. permanent establishment. That generally means a fixed place of business (an office, plant or workshop) or a dependent agent who habitually concludes contracts for the enterprise. The treaty excludes facilities used only to store, display or deliver goods, but the facts matter.

No 30% withholding, no 1042-S

Payment for goods is income from selling property, not fixed or determinable income such as interest, dividends or royalties, so Walmart generally doesn't withhold 30% on it or report it on Form 1042-S. The onboarding system builds the tax form from your answers: a company without effectively connected income gives a W-8BEN-E; one with it gives a W-8ECI.

What changes the answer

Staff in the U.S. negotiating and signing contracts. A salesperson living near Bentonville who regularly concludes orders with buyers for the factory can create a dependent-agent permanent establishment.

A U.S. warehouse, your own customs clearance, DDP delivery. If you hold stock in a U.S. warehouse and sell from it, the business has moved to the U.S., and both sourcing and permanent establishment need a fresh look.

Processing in a third country. Customs origin and the income tax place of production are separate rules; final processing in Vietnam or Mexico needs both analyzed.

Licensing your patents or technology. Fees for that are royalties, not payment for goods, and U.S.-source royalties are subject to withholding, generally 10% under the treaty.

Taking the position that the treaty leaves you with no permanent establishment and no U.S. tax can require disclosure on Form 8833 with a Form 1120-F. When the facts are unclear, a protective Form 1120-F preserves the right to deduct expenses later. Both depend on your contracts and staffing.

Setting up a U.S. subsidiary: what it owes

Many factories set up a U.S. subsidiary to supply as a domestic supplier. Buyers often prefer suppliers with U.S. inventory that can deliver DDP or run drop ship (DSV), and the subsidiary can sell to Walmart, Costco and Amazon too. The cost:

Federal and state income tax: the subsidiary files Form 1120 at 21% federal; income or franchise tax in its warehouse states is extra, and inventory in California brings the $800 minimum franchise tax.

Form 5472: a U.S. corporation 25% or more foreign-owned reports purchases, loans and service fees with its parent; each missed form starts at $25,000 per year.

Transfer pricing: the parent's price to the subsidiary must be arm's length under §482, with contemporaneous support; under §1059A, inventory imported from a related party can't carry a cost higher than the customs value used for duty, plus allowed adjustments. Customs value, transfer price and book inventory cost should agree.

Getting profit home: dividends to the Chinese parent are withheld at 30%, generally 10% under the treaty when the parent gives a W-8BEN-E and qualifies.

BE-13: a foreign person setting up a new U.S. business reports to the Bureau of Economic Analysis within 45 days.

A comparison

Example (hypothetical numbers, to show the method): Towel Factory A supplies about $3,000,000 a year of Member's Mark goods. Selling direct FOB Ningbo with no U.S. permanent establishment, it owes no U.S. income tax and reports the profit at home. With a Delaware subsidiary B leasing a California warehouse and delivering DDP, B buys $2,100,000 from A and pays $300,000 of duty (assumed), $180,000 of freight and $200,000 for warehouse, staff, insurance and audits, with $90,000 of agreement deductions. Pre-tax profit is $130,000: $27,300 of federal tax at 21%, about $11,492 of California tax at 8.84%, and 10% withholding on any dividend.

Selling direct is simplest, but it works only for FOB orders, with no people or goods in the U.S. The subsidiary adds U.S. tax and filings and opens more channels and bigger orders. The choice depends on the order mix and your plans.

The takeaway

For Member's Mark work, U.S. tax turns less on who buys the goods than on whether you have a foothold in the U.S. Selling direct, protect the no-permanent-establishment position and get the W-8BEN-E right; with a subsidiary, plan Form 5472, pricing and state tax together. Routes and entity choices are in the Sam's Club guide, and parent-subsidiary setups in the U.S. subsidiary guide. For a complex structure, start with a free 15-minute call or add WeChat YCLUSA.