Does Amazon FBA inventory create physical nexus in 2026?

What Amazon FBA inventory nexus means for an ecommerce brand

Physical nexus is the sales tax obligation created by tangible presence in a state: inventory, employees, property, or contractors. It was the primary nexus trigger before South Dakota v. Wayfair authorized economic nexus in 2018.

Amazon’s FBA program complicates the picture. When a brand ships product into the FBA network, Amazon distributes that inventory across fulfillment centers it selects to optimize delivery speed. The seller does not choose which states receive inventory. An FBA seller at meaningful volume may have product stored in fulfillment centers across 20 or more states simultaneously, none of which the seller specifically designated.

Under the traditional rule, inventory in a state means physical presence, and physical presence means nexus. Most FBA sellers at scale had physical nexus in many states from the day they enrolled, often years before economic nexus rules existed or before crossing any dollar threshold in those states.

Post-Wayfair, economic and physical nexus coexist. A brand that crossed economic nexus thresholds and registered may assume its obligation is handled. Physical nexus operates independently. A state can assert that physical presence existed before the economic threshold was crossed, extend the lookback accordingly, and assess tax on periods the brand treated as pre-nexus. The audit risk with FBA is primarily retrospective: it lives in the gap between when inventory first landed and when the brand registered or first analyzed its footprint.

What Online Merchants Guild v. Hassell decided, and why it doesn’t settle the question

On September 9, 2022, the Pennsylvania Commonwealth Court ruled directly on the FBA nexus question. In Online Merchants Guild v. Hassell, No. 179 M.D. 2021, the court considered whether the PA Department of Revenue could require sellers to register based solely on FBA inventory in Pennsylvania fulfillment centers, where sellers have no control over which centers receive their product.

The court held that the PA DOR’s guidance asserting nexus was unlawful as applied to those FBA sellers. The holding rested on the absence of voluntary physical presence: a seller cannot establish presence in a state when a third party, acting in its own operational interest, placed inventory there without the seller’s direction.

“The sellers have no control over which fulfillment centers Amazon uses to store their goods, and accordingly cannot be said to have voluntarily established a physical presence in Pennsylvania.” Online Merchants Guild v. Hassell, No. 179 M.D. 2021 (Pa. Cmwlth. Ct. Sept. 9, 2022).

The PA DOR appealed the ruling to the Pennsylvania Supreme Court. For brands with FBA inventory in Pennsylvania, the ruling provides documented legal basis to take the position that FBA placement alone does not create physical nexus there.

The ruling currently binds Pennsylvania Commonwealth Court precedent. No federal circuit has ruled on the voluntary-control theory, and no other state has adopted the reasoning through its own courts or agency guidance. California, Washington, Texas, and New York have not issued guidance consistent with Hassell; for those states, the ruling is informative but not authoritative.

A documented nexus position for Pennsylvania, citing Hassell, is a legitimate approach. Extending that position across the FBA footprint without equivalent state-specific authority is a materially different risk calculation.

For brands that document their Pennsylvania position and register in remaining FBA states, TaxCloud handles the state-by-state registration chain: forms, effective dates, and timing requirements per state.

State-by-state positions on FBA-driven physical nexus in 2026

The four states with the highest FBA nexus exposure for a multi-channel ecommerce brand are California, Washington, Texas, and New York. Each has taken a distinct posture, and none has aligned with Hassell.

A brand below California’s and Texas’s $500,000 threshold, or New York’s $500,000 AND 100-transaction bar, may still have physical nexus from FBA inventory. The registration obligation exists regardless of which trigger applies first.

One pallet in a California FBA center can, under the CDTFA’s stated position, create physical nexus. A brand with $200,000 in California sales owes registration if FBA inventory is present, well below the $500,000 economic threshold (Cal. Rev. & Tax. Code §6203).

For states outside this grid where FBA exposure is common, including Arizona, Georgia, Florida, Indiana, and Tennessee, no published guidance has directly addressed the voluntary-control question post-Hassell. Absence of guidance from a state DOR is not permission to take a contrary position; it means the question is unaddressed, not that nexus is absent.

Why Amazon collecting doesn’t eliminate your registration obligation

Amazon’s marketplace facilitator status is widely misunderstood in this context. In all states with marketplace facilitator laws, Amazon collects and remits sales tax on FBA sales. From a checkout perspective, the brand’s collection obligation appears covered.

Physical nexus changes the analysis. Marketplace facilitator laws govern who collects tax at the point of sale. They do not address whether the seller has a separate presence-based registration obligation. California’s marketplace facilitator statute (AB 147, Stats. 2019, ch. 5) requires Amazon to collect on facilitated sales, but it does not remove Cal. Rev. & Tax. Code §6203’s presence-based registration requirement for sellers with physical nexus. The two obligations run in parallel.

A brand with California physical nexus owes its own returns. Even if Amazon collected 100% of California tax, the brand must file returns, report gross sales, confirm marketplace-collected amounts, and show $0 net due. California issues non-filing notices for missing returns regardless of Amazon’s remittance record.

Washington DOR requires returns covering full Washington presence, with marketplace-facilitated sales on a separate line. Texas Comptroller follows the same structure under 34 TAC §3.286. The return confirms that Amazon covered its obligation; verifying that is the seller’s responsibility.

Brands caught by this pattern enrolled in FBA, saw Amazon collecting tax, and assumed the obligation was satisfied. In audit or M&A diligence, the issue is not uncollected tax. It is missing returns, which creates separate penalty exposure and, in California and Washington, a broader assessment period.

For brands managing registered states across an FBA footprint, consolidated SST filing through TaxCloud covers the 24 SST member states (Tennessee participates as an associate member and is not counted among the 24 full members) in a single process, including states where the return confirms Amazon’s collection with $0 net due from the seller.

The lookback math when FBA inventory pre-dates economic nexus

When FBA inventory arrives in a state before an economic nexus threshold is crossed, the audit exposure runs from the earlier date.

Economic nexus lookback is bounded by its measurement window: California measures the current or preceding calendar year (Cal. Rev. & Tax. Code §6203), Texas the preceding 12 months (Tex. Tax Code §151.107), New York the preceding four sales tax quarters (NY Tax Law §1101(b)(8)). A brand crossing California’s $500,000 threshold in Q3 2024 has economic nexus exposure from that measurement period’s end.

Physical nexus has no measurement window; it runs from when tangible presence began. FBA inventory first arriving in a California fulfillment center in January 2021, with economic nexus crossed in Q3 2024, gives California grounds to assert physical nexus back to January 2021 at audit. That is approximately three and a half years of unregistered exposure at combined state and local rates that can exceed 10% in jurisdictions including Los Angeles County and San Francisco.

California’s statute of limitations on sales tax assessments is three years from the original due date for a timely filed return, or eight years if no return was filed (Cal. Rev. & Tax. Code §§6487, 6503). A brand that never registered faces the eight-year period. FBA inventory placed in California in 2019 can be reached in a 2026 audit.

Texas compounds the exposure through its measurement basis. Texas counts total Texas revenue toward the $500,000 threshold, including taxable, nontaxable, and exempt sales (Tex. Tax Code §151.107). A brand may have had $350,000 in total Texas FBA revenue in 2022, below the economic threshold. Texas can still assert physical nexus for 2022 based on inventory presence, and measure tax due on that full revenue base.

The practical implication: the moment a brand first ships product into FBA, the physical nexus clock starts in every state where Amazon places inventory. The date inventory first arrived, by state, is the foundation of a defensible audit position.

What Amazon documentation you need at audit

State auditors investigating FBA-driven nexus ask two questions: when did inventory first arrive in this state, and how much revenue was generated during the claimed nexus period. Both require Amazon Seller Central reports that brands frequently have not preserved.

Five reports matter:

1. Inventory Event Detail Report, filtered by fulfillment center. The primary audit document, recording every inventory receive, transfer, removal, and disposal by SKU and fulfillment center. Filtering by state establishes when inventory first arrived and whether it remained continuously. Standard retention is approximately 18 months; older periods require a Seller Support request or previously archived export.
2. FBA Inventory Storage Report. Monthly aggregate inventory quantity and storage fees by state. Less granular than the Inventory Event Detail Report, but useful for reconstructing continuous presence month by month across a multi-year period.
3. FBA Restock and Forecast Reports. Historical snapshots of inventory position. Relevant when arguing that FBA placements were driven by Amazon’s network optimization rather than seller direction, which supports the voluntary-control argument in states open to Hassell reasoning.
4. Order Detail Reports by state. Revenue reconstructed by state for the claimed nexus period. Auditors verify taxable sales figures to confirm what Amazon collected and remitted on the seller’s behalf during the period.
5. Form 1099-K (Proceeds from Payment Card and Third-Party Network Transactions). Gross proceeds by year. Not sufficient for a state nexus defense on its own, but useful for reconciliation against Order Detail Reports and for establishing the full revenue picture across the period.

Standard Seller Central retention on transaction-level data is approximately 18 months. A brand surfacing in a 2021 to 2023 audit that has not archived these reports cannot recover them. Quarterly archiving of the Inventory Event Detail Report by state, stored outside Seller Central, is what makes a defense possible.

The operational framework: register defensively, reactively, or document the position

A brand running both a Shopify or Shopify Plus direct channel and Amazon FBA faces a three-position decision for each state where FBA inventory lands. The right answer is not the same across every state.

Register defensively. Register in every state where Amazon places FBA inventory, regardless of economic nexus thresholds. File $0 returns where Amazon collected the full amount. This is the cleanest M&A and audit posture: registered states appear on a compliance schedule. For brands preparing for acquisition or an equity raise, this is the preferred approach. Registering in all 24 SST states (Tennessee participates as an associate member and is not counted among the 24 full members) adds one consolidated filing process, not 24 separate returns, through TaxCloud’s SST filing network.

Register reactively. Register only when the state makes contact, issues a nexus questionnaire, or an audit begins. This is the lowest-cost but highest-risk posture in California, Washington, and Texas, where revenue departments identify FBA sellers through third-party data and Amazon’s own reporting. California’s non-filer penalty under Cal. Rev. & Tax. Code §6511 is 10% of tax due plus interest (reaching 25% under §6514 if due to fraud or intent to evade). Washington’s standard assessment window is four years (RCW 82.32.050), extended when no return was filed. In those states, the reactive position is a deferred liability with compounding penalties, not a cost-saving strategy.

Document the position and wait. The appropriate posture for Pennsylvania, given Hassell, and potentially for states with no published guidance asserting FBA nexus. It requires a written, dated nexus position by state, reviewed quarterly as guidance shifts, and kept as an audit-response document reviewed by tax counsel. An undocumented position is not position 3: it is the reactive approach with less cover.

For a brand with FBA inventory across 20 or more states, the common approach is a hybrid: defensive registration in California, Washington, Texas, and New York; a documented wait position for Pennsylvania; and state-by-state analysis for remaining states where guidance has not been published.

TaxCloud handles the registration chain across that footprint, consolidated SST filing across the 24 member states, and produces the audit documentation trail that surfaces on day one of any state examination: the nexus position log, the filing history by state, and the per-state registration record with effective dates.