The JournalCommerce
What a Foreign Amazon Seller Actually Owes in US Tax
By Andres Platts · 2 min read
Quick answer
Amazon collects sales tax for you in most states. What it does not handle is federal income tax, which turns on whether you have a US trade or business.
Most sellers outside the United States arrive at this question in the wrong order. They ask about sales tax first, because that is the number Amazon shows them, and they treat federal income tax as something that will resolve itself. The exposure runs the other way.
Sales Tax Is Largely Handled, and That Is the Confusing Part
Under marketplace facilitator legislation, Amazon collects and remits sales tax on your behalf in the great majority of states. For most sellers this is genuinely settled, and the settled part is what creates the false confidence: the only tax that was visible has been dealt with, so the assumption is that everything has been.
It has not, and the two taxes answer to entirely different authorities. Sales tax is a state matter. Income tax is federal, and Amazon has no role in it whatsoever.
The Question That Actually Decides Your Position
A non-resident is taxed by the United States on income that is effectively connected with a US trade or business. Whether an overseas seller has one is not a settled question with a single answer, and anybody who tells you otherwise is selling certainty rather than advice.
What is clear is which facts move the analysis. Inventory sitting in US fulfilment centres is a materially different position from drop-shipping directly to US customers from abroad. Employees or contractors located in the United States matter. So does whether the seller has a treaty available, because a treaty typically raises the threshold from a trade or business to a permanent establishment, which is a harder test to meet and therefore a better position to be in.
A non-resident is taxed by the United States on income that is effectively connected with a US trade or business.
The Filing Nobody Expects
A foreign-owned single-member LLC is disregarded for income tax but is emphatically not disregarded for reporting. It files Form 5472 attached to a pro forma return, and the penalty for not doing so is set at a level designed for large corporations rather than for a one-person store.
This is the single most common gap we see in this segment. The seller has been diligent about the tax that was visible, has no idea a reporting form exists, and discovers it through a notice. The obligation is not triggered by profit. It is triggered by the structure existing and by transactions with its owner.
Where the State Question Comes Back
Inventory in a state can create nexus for purposes beyond the sales tax Amazon already collects, including state income or franchise obligations that no marketplace remits on your behalf. Whether that matters depends on which states hold your stock, which for many sellers is a decision the fulfilment network makes rather than they do.
What We Would Look At First
Three facts settle most of it: where the inventory physically sits, whether a treaty is available, and how the entity is owned. Those determine the federal position, the reporting obligations and the state exposure together.
Sellers who get into difficulty here are rarely careless. They have usually done the visible thing correctly and had no reason to know that the larger obligation was the invisible one.
In this series
Banking, Payments & Real Estate
Start hereOpening a US Bank Account as a Non-Resident- Why Do Banks Reject Non-Residents?
- Can You Open a US Business Bank Account Without an SSN or ITIN?
- How Do You Get a Stripe Account for a US LLC Owned From Abroad?
- What's the Best State to Form an LLC for Stripe and US Banking?
- How Do Non-Resident Owners Pay Themselves and Move Money Out of a US LLC?
- Can a Foreigner Buy US Real Estate Through an LLC, One Per Property?
A firm or advisor? Refer clients and build alongside Prodezk.
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