I’ve talked about the ability to start a business and make money without an idea, and I found a product I think I could buy and sell and make some money. I found a wholesale company that could sell me items in bulk, and I’d be able to sell them using Amazon FBA (Fullfilment by Amazon) to sell them.
How I Could Make Money
In this situation, Amazon does almost all the work for you. As a seller, all you have to do is send them in bulk to Amazon (using their very discounted shipping rates), and when someone purchases one, they’d take care of the rest. Best of all, users would be able to use their Prime membership to get free shipping on these items, so it’s all the same to users.
Each product would cost me about $15, and I’d be able to sell them for about $25 after all fees to Amazon (for offering this awesome service). This was in a very specific niche, and others do something similar, but there’s one huge drawback: the tax situation created by having Amazon sell items for you.
The Amazon FBA Tax Nightmare
If I shipped everything to consumers myself, I’d collect and pay sales tax on all orders being shipping to people in California, but everyone else would be able to buy from me tax-free, and I wouldn’t have to worry about any sales tax regulations (of course, I’d still be responsible for income tax, but that’s a bit easier to handle).
The reason using Amazon FBA creates such an issue is that they have warehouses all over the country. If you items are stored in a warehouse in New York and someone in New York buys one of your items, as a seller, you are supposed to pay sales tax. Different states have different laws (which makes the issue even more complicated), but what it traditionally boils down to is whether you have “significant nexus” in a state that you ship a product to.
If you do business in a state and you sell items in that state, you are supposed to collect and pay sales tax in that state. That sounds easy enough, but even thought I’m an individual and I don’t own any warehouses, Amazon storing some of my items in their warehouses might constitute “significant nexus,” depending on who you talk to.
Where it gets really complicated is when you have items in various warehouses across the country and you can’t track exactly which warehouse is shipping your products. If you two types of books, Book A stored in New York and Book B in California, and someone from New York buys Book B, should you have to pay sales tax on that even if the item was never stored in New York? Or since your company stores some stuff in New York, every item you sell is considered as having “significant nexus?”
It’s kind of hard to wrap your head around, but that’s not the end of it.
It Gets Worse
Amazon collects sales tax for 21 states as of this writing. So I’d have to collect and pay sales tax for those 21 states. I’m just one person, but I’m supposed to file for tax licenses and calculate how much was sold in each state and send them money every month or quarter or year (of course, it varies by state). That seems like an undue burden on me, but if you want to follow the letter of the law (and avoid possibly getting hit with a large tax bill plus and penalties down the road), it seems like you’ve got to deal with all of these shenanigans.
I’m Not Starting A Business
I’m sure there is a very good reason for each state to have their own laws, but it’s simply too much for me. While I’d love to make some money with fairly little effort, I am not in a position to make this a full time business, nor do I have any desire to spend most of my time worrying about tax regulations. I mess up enough on my own with my LLC, which is why I’m closing it. So I will pass on this opportunity and look for the next thing that might help me reach my goals.
Would you ever use Amazon FBA for your business, knowing all the tax regulations you’ll have to deal with?