Best LLC for Amazon FBA: inventory nexus and seller account rules

An FBA business has three assets: the inventory, the brand, and the seller account. Only one of them is on the balance sheet, and it is the least valuable of the three. Structure the business around that fact and most of the decisions make themselves.

The short answer

A single-member LLC, disregarded for federal tax, in the state you live in. Register the seller account in the LLC's name from the beginning. Elect S-corp status when net profit is durable and past roughly $80,000 — FBA margins are better than dropshipping margins, so this arrives at a lower revenue than people expect.

Then answer two questions that are specific to FBA and that most sellers postpone until they are expensive: where your inventory creates nexus, and who owns the trademark.

Your inventory is in states you have never been to

When you send stock to Amazon, Amazon distributes it across its fulfilment network. You do not choose the warehouses and often do not know which states hold your units at any given moment. Physical presence in a state has historically been the strongest possible basis for a sales-tax obligation, and inventory is physical presence.

Two developments changed how much this matters, and it is important to be precise about what each one did:

• Marketplace facilitator laws now require Amazon itself to collect and remit sales tax on marketplace sales in every state that has a sales tax. Your Amazon-channel sales are collected on. This is the part that removed most of the day-to-day burden.
• Collection is not the same as registration. Several states still take the position that inventory in the state creates nexus and therefore a registration or filing obligation, even where the marketplace does the collecting. States have differed on this, and at least one state court has held that FBA inventory alone did not create nexus for an out-of-state seller — which tells you the question is genuinely contested rather than settled.

The practical approach: pull your inventory placement report, list the states holding your stock, and get a position on each one rather than assuming either extreme. Register where the state's own guidance says you must. Do not register in twenty-five states reflexively — every registration creates a filing obligation that continues until you formally close it.

Inventory is also an accounting question

Holding stock changes how you are allowed to keep books. Businesses under the Section 448(c) gross-receipts test — $32,000,000 of average annual gross receipts for tax years beginning in 2026 — get significant relief, including the ability under Section 471(c) to treat inventory in a simplified way rather than under the full uniform capitalisation rules.

For a seller doing under a few million dollars this is good news, and it is the reason your accountant is relaxed about something that sounds alarming. It does not remove the need to actually track units and landed cost. Two things you will regret not tracking from day one:

• Landed cost per unit — goods, freight, duty, and the FBA inbound cost — rather than just the supplier invoice.
• Inventory on hand at year end, by SKU. Profit is revenue minus cost of goods *sold*, and unsold stock is not an expense yet. Sellers who ignore this are routinely surprised by a tax bill on inventory they have not converted to cash.

The seller account is an asset, and it is fragile

Amazon verifies the legal entity behind an account, and the verification is documentary: registration certificate, address, beneficial ownership, sometimes a utility bill in the exact matching name. Two consequences:

1. 1Open it in the entity's name from the start. Changing the legal entity on an established account triggers re-verification, and re-verification means the account can be down while it happens. Sellers lose weeks of Q4 to this.
2. 2Keep the details true. The address, the phone number and the beneficial owners on the account should match the ones on the filings. Mismatches are the most common trigger of a verification hold, and they are entirely self-inflicted.

One account per business, too. Operating multiple seller accounts without approval is against Amazon's policy and the enforcement is account-level, not listing-level.

Who should own the trademark

Brand Registry requires a registered or pending trademark, and it is what gives you control of your listings, access to A+ content, and a workable route against hijackers. The application asks who the owner is, and the answer is worth thinking about for ten minutes rather than defaulting.

The liability that is actually yours

Private-label sellers are the manufacturer's importer of record and, to a US buyer, effectively the manufacturer. Product liability lands on you, and Amazon's policies require liability insurance above a modest sales threshold anyway. Commingled inventory adds a second exposure that is unique to FBA: if you opt into commingling, a customer can receive a counterfeit unit from another seller's stock against your listing, and the complaint attaches to your account.

Both are managed the same way — stickered inventory rather than commingled, real product liability cover, and supplier agreements that are worth reading.

If you are not a US person

• No S-corp election. Section 1361 bars non-resident alien shareholders.
• Form 5472 with a pro-forma Form 1120 annually, at a $25,000 penalty for failure to file, whether or not tax is due.
• Inventory in the United States is a materially stronger US connection than a service business has. Where a foreign seller holds stock in US warehouses and sells to US customers, the effectively-connected-income analysis is a real one and a treaty permanent-establishment argument may or may not help. This is worth professional advice before the first shipment, not after the first tax year.
• Amazon will ask for tax information and will withhold if it is not provided. Complete the interview properly, with the entity's details.

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