Let’s say you have determined a Limited Liability Company (LLC) as the legal structure of your Amazon business in the US. Whether you are a US resident or non-resident, you must be wondering “Which state is the best to form an LLC for Amazon FBA?”.
Discover the top states for incorporating your Amazon business in this article!
How to decide an ideal state to register LLC for selling on Amazon
There are fifty states for consideration. But how can you choose the best one among them to establish your LLC for Amazon FBA?
Choosing a state that suits your Amazon business is crucial. Because it is the cornerstone where you will build your eCommerce success.
Below you will find some criteria to help you get a better idea of how an ideal state should adapt!
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.
As a new Amazon vendor, you’ll want to save your capital as much as possible.
Thus, you should consider a state that suits you in terms of costs and purposes. For instance, selecting a state with no or low annual fees for your LLC is a good idea.
Favorable legal system
Relaxed regulations will make your business avoid getting involved in legal troubles. Or problems can be solved efficiently with well-organized legislation.
Favorable tax regime for online business
When it comes to operating an online business, tax is probably the most-concerned matter. A state that offers more tax benefits is always attractive to entrepreneurs. Such benefits can be low sales tax, low personal income tax, or tax exemption policies.
As an online seller, you must hear about eCommerce sales tax. Some states set their own sales tax nexus conditions to charge directly on customers. You must report and file sales tax for your Amazon business to any state that has your buyers if it has a tax nexus requirement.
Good thing is that some states don’t apply sales tax.
Additionally, certain types of tangible products are not taxable in some states. For instance, you don’t need to collect sales tax from your buyers if you sell clothing products in Pennsylvania.
If you have already determined the types of products you are selling or going to sell, do research on which state gives you the best eCommerce tax advantage.
Easy access to Amazon fulfillment center or warehouse
With the Amazon FBA program, you must send your products from your place of business to the Amazon warehouse. Assume that you are planning to form an LLC with a physical place to store your products. The state with Amazon warehouses will save your time and money for transportation.
The largest market of your business
The best state for your Amazon business is going to be the place with the most buyers of your products. It will make your transportation process of goods and sales tax collection more efficient.
Best states to form LLC for Amazon FBA
Here are the top states worth putting on your consideration list for LLC formation for Amazon business.
1. Your home state
Being a US citizen, you almost don’t have any difficulties in registering the LLC and operating your Amazon business.
Whether your business is online or brick-and-mortar, it is often recommended to form an LLC in your home state if you primarily conduct the business there. Being physically present in your state will smoothen and simplify the company registration procedures.
Entrepreneurs from their home state may form LLCs in other states, but not in their own state for a variety of reasons. Regardless of the reason, you should plan carefully before making any decisions since some complicated procedures may be involved. Those are “foreign qualifying” procedures. Therefore, the documentation process may be doubled.
Besides, most states require a registered agent for company registration, which will cost more to your business if you register twice.
However, if you are:
- Seeking another state for specific purposes such as tax optimization, market expansion or change of business location; or
- Non-residents without social security numbers (SSN);
Other states may be your preferred option.
2. Delaware – best state for eCommerce business
In 2020, Delaware ranked second place as the leading US state with the most small business sellers per capita on Amazon.
No less than the popularity of Wyoming, Delaware is a leading choice of LLC formation for Amazon business. So what are the reasons?
No sales tax. While Wyoming applies low sales tax, Delaware just excludes it from tax collection. The state doesn’t have economic nexus laws.
For Amazon sellers, this is a great advantage. Their buyers don’t have to pay sales tax when buying the products. It is because the sales tax is usually directly added to the prices. In this way, sellers can make the prices more competitive to increase sales volume or gain more profits.
Low property tax. According to The Tax Foundation, Delaware placed 43rd out of 50 states as state and local property tax collections per capita. If you operate your LLC including a warehouse, office, land or factory, low property tax is a plus point.
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.
In addition, as the owners of a Delaware LLC, you can stay anonymous by using nominee services. Plus, the nature of an LLC is that you and your company are separate legal personalities. With these features, you and your assets are likely to be safe from creditors.
Multiple established Amazon warehouses. Delaware is the second-smallest US state but also the location of 4 huge Amazon warehouses. Another fulfillment center in Boxwood Road will be opened soon to meet the strong demand for eCommerce in the state.
Company incorporation with ease. You can incorporate Delaware LLC regardless of your place of residence. Not only residents but also non-residents can open an LLC in the state. The state also doesn’t require you to engage in business within the border for company registration.
The key incorporation procedure requires you to obtain the Certificate of Formation. After you prepare and submit all required documents to the Secretary of Delaware, you are expected to receive the certificate in 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.
3. Wyoming – one of the states with the lowest tax
Along with Delaware, Wyoming is definitely the most-mentioned name when talking about LLC for Amazon FBA. If you are a non-resident, Wyoming is a recommended option to form your LLC. Wyoming ranked no.1 in The Tax Foundation’s State Business Tax Climate Index in 2020.
Low or no sales tax on multiple types of tangible products. The state is one of the states offering the most preferable sales tax regime. The tax rate is 4% for most tangible products in Wyoming. Some types of products enjoy zero tax rates.
Below are some examples of Wyoming sales tax:
- Clothing: 4%
- Prepared food: 4%
- Groceries: 0%
- Prescription drugs: 0%
- Raw material for manufacturing and machinery: 0%
Still, Wyoming sales tax is destination-based. Your products will be subject to higher tax in some counties. The maximum rate is 6%.
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 will be zero as it is your individual income tax.
Re-domiciling policy. Wyoming allows business owners to move their existing LLC from another state or another country to Wyoming.
Assume that you are operating an LLC for your Amazon business in New York. But the costs are too high there, and your business is too small to gain adequate profit. You definitely want to redomicile to another state. In this case, Wyoming is an efficient solution.
You don’t need to dissolve the old one and start the registration of the new LLC in Wyoming, which will save you more time and money.
Low maintenance fee. You only need to pay an annual fee of $US 60 at the minimum to continue your Wyoming LLC. Meanwhile, a California LLC must submit at least $US 800 for the continuation.
Although Amazon sellers can receive a lot of tax benefits in Wyoming, it doesn’t have any Amazon fulfillment center. If you are looking for the convenience of transporting goods to an Amazon warehouse, you can consider other states.
4. Nevada – the state of various supporting programs
Nevada attracts Amazon sellers by incentivizing them with many business assistance programs, no-tax policies.
Tax-friendly regime. If you own a Nevada company, your business will be exempt from the following tax types:
- Corporate Income Tax
- Taxes on Corporate Shares
- Franchise Tax
- Personal Income Tax
- Franchise Tax on Income
- Inheritance or Gift Tax
- Unitary Tax
- Estate Tax
However, you must submit sales tax to the state if you have physical or economic nexus within the border. You will be subject to the nexus regulations when your annual sales in Nevada reach over $US 100,000. If you have more than 200 transactions within the state, you are also required to meet the nexus requirements.
The amount for sales tax collection will depend on the county where customers buy your products. The highest sales tax in Nevada is 8.375%.
Support programs for encouraging small businesses. To foster entrepreneurship, Nevada has developed multi-development schemes for small businesses to increase their credit availability.
One outstanding example is the Emerging Small Business Program (ESB). If you meet the criteria as a small business, you will receive capital investment alongside tax reduction such as Sales and Use Tax Abatement or Modified Business Tax Abatement.
Large Amazon investment. Nevada has a larger network of Amazon warehouses compared to Delaware. The state has 6 fulfillment centers for Amazon.
Other considerations. The annual fee for the maintenance of a Nevada LLC is higher compared to Wyoming and Delaware.
Choosing an appropriate state for your Amazon business is an important decision. It will affect your business in the long run. Either Delaware, Wyoming, Nevada, or your home state have their own advantages. The best state to form an LLC for the Amazon FBA program is the one that perfectly fits your business needs.
If you need more practical advice or are seeking the incorporation opportunity, feel free to consult us at any time.