Amazon Warehouse | Nexus in Pennsylvania

In September 2022, the Pennsylvania Commonwealth Court ruled that non-Pennsylvania businesses selling goods through Amazon, and whose only contact with the state was storing inventory at one of Amazon’s Pennsylvania warehouses, n were not subject to Pennsylvania sales/use tax laws or personal rights. income tax laws (and didn’t even need to answer a business activity questionnaire). Net corporate income tax has not been addressed. The following is a summary of the decision Online Merchants Guild v. Department of Revenue and its implications.


In 2012, Amazon and Pennsylvania reached a mutual agreement that Amazon would begin collecting and remitting taxes to the state, notwithstanding physical presence. However, this agreement only applied to goods owned and sold by Amazon. It did not apply to goods sold by third parties under the Fulfillment by Amazon (“FBA”) program.

In 2018, Pennsylvania implemented a requirement to collect taxes from online marketplaces that sell products on behalf of third-party vendors. PA 43 of 2017 required the online seller to collect and remit the tax on its own sales and on FBA sales. In cases where Amazon failed to properly collect and remit the tax, the FBA merchant would be responsible.

In the years since, the Pennsylvania Department of Revenue has sent out more than 11,000 business activity questionnaires to FBA merchants who have inventory storage at Amazon warehouses in Pennsylvania, along with an opportunity to participate. to a voluntary compliance program that offered limited rollback and penalty waivers. Failure to provide the information requested in the questionnaire would result in “additional enforcement action” against traders.

Applicant’s case

The Online Merchants Guild (the “Guild”) is a trade association comprised of online businesses that sell merchandise through the FBA program. The Guild has sued the PA Department of Revenue on behalf of its members who received the business activity questionnaire, arguing that it is a violation of their due process rights. The Guild argued, and the court agreed, that although the FBA merchant owns the inventory, it is Amazon that controls the storage and shipping of the goods, and the seller does not know which Amazon warehouse will use. ultimately to store the products after the inventory is transferred. The notice stated: “We find it hard to imagine how, under these circumstances, an FBA merchant placed his merchandise in the stream of commerce in the expectation that it would be purchased by a customer located in the Commonwealth or availed of the Commonwealth’s protections, opportunities and services. The court rejected the Department’s argument that, by participating in the FBA scheme, the merchants should have reasonably foreseen that they would incur a Commonwealth tax liability.

Department’s argument

The Department’s denial of the Guild’s due process request was rooted in the fact that the merchants never received a tax request, but rather a request for information regarding a possible tax liability. As no tax notice was ever issued, taxpayers were not deprived of any available administrative process. In addition, Section 272 of Title 72 of the Pennsylvania statute authorizes the Department to “examine the boxes, papers, and records of any taxpayer to ascertain the accuracy and completeness of any statement made or, if no statement was made, to determine and assess the tax.”

The court, while acknowledging that there was no tax request, disagreed that the business activity request was only a request for information, as the form stated that failure to provide the requested information would result in further enforcement action. The notice noted: “If we follow the recommendations of Revenue [circuitous line of reasoning], FBA merchants have placed themselves under the jurisdiction of Revenue and therefore have no way to challenge Revenue’s authority to investigate their records and determine their tax liability before Revenue has investigated their records. and determined their tax liability. The court held that “the IRS’ investigative powers under section 272 apply to taxpayer records, not to individuals or entities. Tax suspects can be taxpayers.

Implications of the Court’s decision

The Commonwealth Court’s decision raised more questions than it answered. For example, if Section 272 only applies to taxpayers, can Pennsylvania no longer audit out-of-state businesses and individuals who are not already registered for Pennsylvania tax? What if the state has a reasonable cause? Wasn’t the information provided by Amazon regarding FBA merchant inventory reasonable to justify the business activity questionnaire in this case?

If the decision stands and “control” of inventory becomes the de facto criterion for purposes of linking, how do we define control? Will using fulfillment companies no longer create a bond in Pennsylvania, since the seller has no physical control over inventory, even if the fulfillment company only has one warehouse located in the state?

The Department of Revenue has 30 days to appeal the decision to the Supreme Court of Pennsylvania. Hopefully the future will provide answers to the many questions left open by this decision.