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Criteria to decide the best state for registering an LLC to sell on Amazon
Selecting a state that aligns with your Amazon business is crucial, as it serves as the foundation for your success. With more than 50 states to consider, we have created a list of criteria below to help you decide:
Assume that you are a newcomer to the US Amazon market or you are just a new Amazon seller with limited capital. Conventionally, you don’t want to spend too much time and resources on just registering the company.
Forming an LLC for your Amazon FBA is a wise choice because of its simple registration process and liability protection for owners. Straightforward incorporation usually takes you a couple of days for the process, which will save you time and money.
Therefore, your mind can focus more on building a solid foundation for your online business.
Selecting a jurisdiction with minimal or no annual fees can be a clever move. This shall allow you to make the most of your financial budget as you forge ahead with your Amazon venture.
Stable legal system
You can avoid legal problems by picking a jurisdiction with relaxed regulations. Thus, if you do face any issues, effective legislation can resolve them efficiently.
Favorable tax regime for online business
When it comes to operating an online business, tax is one of the biggest concerns. A state that offers more tax benefits (e.g. low sales tax, low personal income tax, tax exemption) is always appealing to entrepreneurs.
Online sellers should be aware of eCommerce sales tax as well. If a state has a tax nexus requirement, you must report and file sales tax for your Amazon business.
What are sales tax nexus conditions?
Some states set their own sales tax nexus conditions to charge directly to customers.
On the contrary, there are states with no sales tax for tangible products. For instance, you don’t need to collect sales tax when selling clothing products in Pennsylvania.
Access to Amazon fulfillment center or warehouse
When utilizing the Amazon FBA program, you need to ship your products from your business location to an Amazon warehouse.
If you consider forming an LLC with a physical storage space, a state with Amazon warehouses (e.g. Alabama, Arizona, California, Delaware, etc.) can help you save time and various costs.
Market expansion for your business
To optimize your Amazon business, you should select a state with a high concentration of your product’s target customers. This choice will enhance the efficiency of your goods transportation and streamline sales tax collection.
Best states to form an LLC for Amazon FBA
Now that you know the key criteria, it’s time to evaluate how the features of several states align with your business needs. Let’s explore and discover the best match for your business.
Your home state
As a US citizen, registering an LLC and operating your Amazon business is typically hassle-free.
If your business operates primarily within your home state, you should form an LLC there. Being physically present in your state will streamline and simplify the company registration process.
That being said, entrepreneurs might choose to establish LLCs in different states for various reasons. These reasons could include:
- Tax optimization: Some states have more favorable tax environments for businesses than others. Entrepreneurs may choose to form an LLC in a different state to take advantage of lower taxes, tax incentives, or more favorable tax laws.
- Market expansion: If a business plans to expand into other states or regions in the future, forming an LLC in a state with favorable business laws or tax advantages for multistate operations might be a strategic choice.
- Non-residency: Non-resident entrepreneurs without a physical presence in their home state may choose to form an LLC in another state that better suits their business needs or tax situation.
However, it’s crucial to exercise caution and plan carefully before forming your LLC in other states, as it could require foreign qualification procedures (e.g., Delaware Foreign Qualification).
Additionally, keep in mind that registering the same company in multiple states often entails the cost of maintaining a registered agent in each state.
Delaware – the best state for eCommerce business
Delaware is well-known for its strong presence in eCommerce. According to Amazon’s U.S. Small Business Empowerment Report in 2023, Delaware ranked second among all U.S. states in terms of the highest number of small businesses selling on Amazon per capita.
Notably, it shares the spotlight with Wyoming as a favored option for forming LLCs. Let’s delve into the reasons behind its popularity!
No sales tax
While Wyoming applies low sales tax, Delaware goes even further by offering tax exemptions.
Additionally, Delaware doesn’t have economic nexus laws, which means your buyers are relieved from paying additional taxes when purchasing products. These taxes are typically included in the prices.
Low property tax
Delaware ranks 43rd out of 50 states in property tax collections per capita. If you have properties like warehouses, offices, land, or factories, a low property tax rate will help with the costs.
Strong asset protection
Delaware is a leader in asset protection. The state has asset protection trusts and institutions responsible for protecting your assets from potential creditors.
Moreover, using nominee services allows the owners of a Delaware LLC to stay anonymous. Your company is also regarded as a separate legal entity from its director.
Multiple established Amazon warehouses
Despite being the second-smallest US state, Delaware has one of the four massive Amazon warehouse locations.
Additionally, the state has opened another fulfillment center on Boxwood Road to cater to the growing demand for eCommerce services in the region.
Company incorporation with ease
Setting up your Amazon LLC in Delaware is a seamless process.
Regardless of your place of residence, both residents and non-residents can form an LLC in the state. There is no requirement to conduct business within Delaware’s borders for company registration as well.
The primary incorporation procedure involves obtaining the Certificate of Formation. Once you submit all the necessary documents to the Secretary of Delaware, you can expect to receive the certificate within 3-4 days.
Note that you must pay an annual fee of $US 300 to the Secretary of Delaware as an ongoing obligation for the LLC.
Looking for company formation with ease in Delaware?
BBCIncorp offers the full package! Enjoy significant benefits by registering a Delaware LLC with our online incorporation service.
We simplify the registration process and paperwork, so you can get your business up and running quickly and easily. Get in touch now for more details!
Wyoming – the state with advantageously low taxation
Similar to Delaware, Wyoming is frequently mentioned when considering LLC for Amazon FBA.
Wyoming provides a business-friendly tax environment, thanks to its low sales taxes and absence of corporate income taxes. In the 2024 State Business Tax Climate Index conducted by the Tax Foundation, Wyoming secured the top spot.
If you are a non-resident, Wyoming holds great potential. Below are the advantages that explain why:
Low or no sales tax on multiple types of tangible products
One of the key advantages is the sales tax on various tangible products.
Wyoming provides a standard 4% tax rate applicable to most tangible products, not to mention certain categories of products enjoy a zero rate.
Here are Wyoming’s tax rates for several categories:
- Clothing: 4%
- Prepared food: 4%
- Groceries: 0%
- Prescription drugs: 0%
- Raw material for manufacturing and machinery: 0%
However, Wyoming has a destination-based sales tax system. This means the tax rate depends on the county where your products are sold.
No personal income tax
The state doesn’t levy taxes on personal income. If you establish an LLC and reside within the state, tax on your company’s profit and individual income will be zero.
Wyoming allows business owners to move their existing LLCs from another state or another country to the state. If you’re currently facing high costs and seeking better profit opportunities, relocating to Wyoming can be a viable solution.
The process of redomiciling to Wyoming allows you to transfer your LLC without dissolving the old one and starting from scratch.
Low maintenance fee
You only need to pay an annual fee of $US 60 at the minimum. Meanwhile, a California LLC must submit at least $US 800 for continuing business.
Despite the tax benefits, Wyoming lacks Amazon fulfillment centers. If easy access to an Amazon warehouse is essential, exploring other states may be a better option for your business.
Nevada – the state of various supporting programs
Nevada attracts Amazon sellers by incentivizing them with many business assistance programs, and no-tax policies.
Let’s discover why Nevada is a top choice for entrepreneurs looking to start their LLCs for the Amazon FBA.
Owning a Nevada LLC comes with the advantage of being exempt from various tax types such as corporate income tax, taxes on corporate shares, franchise tax, personal income tax, franchise tax on income, inheritance/ gift tax, unitary tax, estate tax, etc.
In Nevada, if you have a physical presence or meet specific economic criteria within the state, you must remit sales tax. You’ll be subject to nexus regulations ọnce:
- Your annual sales in Nevada exceed $100,000; or
- You conduct more than 200 transactions within the state.
The sales tax amount you collect will vary based on the county where your customers make purchases, with the highest sales tax rate being 8.375%.
Support programs for encouraging small businesses
Nevada boosts motivation for entrepreneurship through various programs, such as the Emerging Small Business Program (ESB).
Eligible small businesses will receive capital investment alongside tax reductions. This includes the Sales and Use Tax Abatement or Modified Business Tax Abatement.
In short, Nevada’s initiatives aim to increase credit availability and support the growth of small businesses.
Large Amazon investment
Nevada stands out as a top choice for Amazon sellers due to its significant investment in the Amazon network, with a total of 6 fulfillment centers.
This extensive fulfillment infrastructure can be a crucial advantage for businesses seeking efficient and timely delivery of their products.
The annual maintenance fee for a Nevada LLC is relatively higher than what you would find in Wyoming or Delaware. This factor should be taken into account while weighing the overall costs of setting up your business in the state.
Determining the best state to form an LLC for Amazon FBA requires careful consideration of various factors. Each state offers unique advantages and disadvantages, such as tax benefits, regulations, and fulfillment infrastructure.
For instance, Delaware is popular for its tax exemptions and anonymity benefits. Wyoming appeals to non-residents with its low taxes and straightforward business-friendly environment. Meanwhile, Nevada offers a large network of Amazon warehouses for efficient product delivery.
No matter what you decide, we’re here to assist you with company incorporation in the jurisdictions of your choice. Our team will guide you through the process of establishing a new business entity and offer advice on other important factors. Don’t hesitate to drop a message via firstname.lastname@example.org today!
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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