What Is The Best State To Form An LLC For Amazon FBA?

How to decide an ideal state to register an LLC for selling on Amazon

Selecting a state that aligns with your Amazon business is crucial, as it serves as the foundation for your success. With fifty states to consider, finding the best one to establish your LLC for Amazon FBA is not an easy task at all.

Our list of criteria below will help you get a better idea of what an ideal state looks like!

Simple incorporation

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.

Low fees

As a new Amazon vendor, you would want to save your capital as much as possible. You must choose a state that aligns with your budget and objectives.

Opting for a state with minimal or no annual fees for your LLC can be a wise decision.

Favorable legal system

Choosing a jurisdiction with relaxed regulations can help your business avoid legal troubles, and if any issues arise, well-organized legislation ensures efficient problem-solving.

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.

Some states set their own sales tax nexus conditions to charge directly to customers. On the contrary, several states don’t apply sales tax for tangible products.

For instance, you don’t need to collect sales tax from your buyers if you sell clothing products in Pennsylvania.

Easy 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.

The largest market of 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 may opt to form LLCs in other states for various reasons. For instance, 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.

However, before making such a decision, careful planning is essential as it might involve foreign qualifying procedures. In most cases, if you register the same company twice, you will have to pay for a registered agent in each state.

Delaware – the best state for eCommerce business

Delaware, known for its strong presence in eCommerce, secured the second position in 2020 among US states with the highest number of small business sellers per capita on Amazon.

Notably, it shares the spotlight with Wyoming as a favored option for forming LLCs in the Amazon business domain.

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 is a significant advantage for Amazon sellers. Your buyers are relieved from paying additional taxes when purchasing products, as these taxes are typically included in the prices.

In this way, sellers can make the prices more competitive to increase sales volume or gain more profits.

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 is preparing to open 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.

Wyoming – the state with advantageously low taxation

Similar to Delaware, Wyoming is frequently mentioned when considering LLC for Amazon FBA.

With low sales taxes and no corporate income taxes, Wyoming offers a favorable tax environment that can contribute to the financial success of businesses. In 2020, it ranked no.1 in The Tax Foundation’s State Business Tax Climate Index.

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 favorable sales tax rates, with a standard 4% tax rate applicable to most tangible products. Additionally, 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.

Re-domiciling policy

Wyoming allows business owners to move their existing LLCs from another state or another country to Wyoming.

If you’re currently running an LLC for your Amazon business in New York but facing high costs and seeking better profit opportunities, relocating to another state like 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 to continue your Wyoming LLC. Meanwhile, a California LLC must submit at least $US 800 for the continuation.

Despite the tax benefits, Wyoming lacks Amazon fulfillment centers. If easy access to transporting goods 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.

Tax-friendly regime

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.

Other considerations

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.

Conclusion

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.

If you need support on the matter, feel free to contact us at any time via service@bbcincorp.com for more information.

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