It has become popular for many New Zealanders to sell their wares on Amazon, and we assist many businesses as they attempt to navigate their way through the U.S. tax system.


Navigating federal and state income tax laws is usually complex enough.

However, the level of complexity becomes exponential with SALT (State and Local Taxes) issues frequently arising.

50 states with varying statutory law and case law often carry no commonality and furthermore, can contradict the laws of another state.

It all comes down to one key point: nexus.


What is nexus?

Having nexus in a state means that a state has the ability to impose state income tax or state sales tax, or both, on a non-resident under its local sales and/or income tax legislation.

It is important to note that what constitutes nexus for income tax purposes may not constitute nexus for sales tax purposes.

In the case of income tax, nexus is created where there is an economic presence in a state. What constitutes an ‘economic presence’ varies markedly from state to state. A 2015 survey in which representatives from all states commented on the matter resulted in some states asserting that the mere presence of a bank account constitutes an ‘economic presence’ and that there would be nexus for income tax purposes.


Physical and economic presence

With respect to sales tax, nexus is a narrower test, in that there must be a physical presence in the state.

Whilst this concept has been defined by case law which has passed through the Supreme Court, the concept of a ‘physical presence’ again varies from state to state.

The concept of nexus is specific to the state and local sales tax issue and is distinguishable from domicile, and residency.

In the case of doing business with Amazon, by way of supplying products from New Zealand, we are most concerned with a potentially unknown exposure to state sales and local taxes.

Insofar as economic presence goes, being the test for income tax nexus, it can be – but not always – quite clear whether economic presence exists or not.

However, for SALT purposes, it may not always be clear whether there is a physical presence which will create nexus, for products may seemingly disappear into the maze of Amazon’s inventory system and end up housed in a warehouse in an unknown state, creating an unknown state sales and/or local tax liability.

Similarly, liability to SALT may arise from services provided by Amazon in any given state, such as facilitation, in which case Amazon may be acting as an agent.

SALT is an emerging issue, and we will continue to provide further information on this specialist area of U.S. taxation.