Summary: A recent ruling by the Commonwealth Court of Pennsylvania has clarified that inventory stored in an Amazon FBA warehouse does not create physical presence nexus for out-of-state retailers. 

    Details on What Happened in Pennsylvania’s Amazon FBA Inventory Nexus Case

    In June 2022, the Online Merchants Guild brought
    case No. 179 M.D. 2021 before the Commonwealth Court of Pennsylvania. The key issue before the Court is whether non-Pennsylvania businesses that sell merchandise through Amazon’s FBA Program must collect and remit Pennsylvania sales tax pursuant to Section 237(b)(1) of the Tax Reform Code of 1971.

    Section 237(b)(1) states:  “[e]very person maintaining a place of business” in the Commonwealth of Pennsylvania (Commonwealth) must collect and remit Pennsylvania sales tax, or pay personal income tax (PIT) pursuant to Section 302(b) of the Tax Code, which imposes PIT at a rate of 3.75 % upon nonresidents for income derived from sources within this Commonwealth.” 

    The Guild said that the Pennsylvania Department of Revenue (DOR) can’t prove that the FBA Merchants had enough contact with the state to bring them under the DOR’s jurisdiction. The guild also said that Amazon, not the FBA Merchants, is in charge of storing and shipping goods in the FBA Program, so an FBA Merchant’s mere participation in the FBA Program does not create meaningful contacts within Pennsylvania.

    The court said that the Pennsylvania Department of Revenue had not shown enough proof that non-Pennsylvania businesses selling goods through the FBA Program, whose only connection to Pennsylvania was through Amazon FBA, had enough ties to the state for the DOR to require them to collect and remit sales tax.

    Marketplace facilitator laws went into effect in Pennsylvania on 1/1/2019. From that point forward, Amazon was responsible for collecting and remitting all sales tax due for sales made on its platform that are shipped to Pennsylvania.

    If a seller had inventory stored in an Amazon FBA warehouse before 1/1/2019, the PA Department of Revenue  previously asserted that physical nexus applied, and the retailer must pay sales tax on ALL of its sales into Pennsylvania, whether sold on Amazon or via another sales channel, like the seller’s website. If the seller had inventory stored in an Amazon FBA warehouse after 1/1/2019, the Pennsylvania Department of Revenue asserted that this still creates nexus for the seller for their non-marketplace sales, like sales made via the sellers website. This policy has been overturned by the current ruling.  

    Normally, we would expect the Department of Revenue to appeal this decision. However, a Department of Revenue spokesman, Jeffery Johnson indicated the Department would not file an appeal, stating “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.”  Instead, the Department will change the business activity questionnaire it uses to no longer include Amazon FBA inventory as a physical presence nexus trigger.


    What Does the Online Merchants Guild Ruling from Pennsylvania Mean for Out-of-state Retailers?

    Having inventory in an Amazon FBA warehouse in Pennsylvania does not create a physical presence nexus for out-of-state retailers.

    What Does the Pennsylvania Ruling on FBA Inventory Mean for Businesses That Registered for a Sales Tax Permit Unnecessarily?

    Remote sellers may have paid out-of-pocket for sales tax which they did not owe based on this ruling.
    Retailers may have previously registered for a Pennsylvania sales tax permit based solely on storing inventory in an Amazon FBA warehouse. Based on this ruling, a permit would not have been required in the first place. If the retailer paid for sales tax out-of-pocket which wasn’t due to the state, they might be able to request a refund. We don’t know how the DOR is going to handle this.

    Now that the Pennsylvania court has ruled that having inventory in an Amazon FBA warehouse does not create physical presence nexus for out-of-state retailers, it’s unclear whether retailers who were previously forced to pay sales tax out-of-pocket will have recourse to reclaim the tax. We don’t think that Pennsylvania is going to voluntarily refund sales tax paid to retailers who did not have nexus. We expect there to be discourse and conflict as retailers request refunds from the state. 



    Disclaimer: Our attorney wanted you to know that no financial, tax, legal advice or opinion is given through this post. All information provided is general in nature and may not apply to your specific situation and is intended for informational and educational purposes only. Information is provided “as is” and without warranty.


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