FBA inventory stored in California can trigger back taxes

If you sell through Amazon’s marketplace and use FBA, Amazon collects and remits California sales tax on those transactions as a marketplace facilitator. What it does not handle — and what a lot of FBA sellers don’t realize — is California franchise tax and income tax. These are separate obligations, filed with a different state agency, and Amazon has nothing to do with them.

Two California Office of Tax Appeals decisions — one decided in October 2025, one published in March 2026 — have reaffirmed California’s longstanding position that storing FBA inventory in California fulfillment centers makes you liable for franchise and income tax as an out-of-state seller, regardless of how much you sold, and regardless of whether you meet California’s economic nexus thresholds. If you thought staying below those thresholds kept you in the clear, it doesn’t. The courts confirmed that any FBA inventory in California is enough.

The minimum is $800 per year. Every year your inventory was there. If you’ve been using FBA for several years and never filed a California franchise or income tax return, the exposure compounds. Here’s what the rulings say and what to do about it.

What the courts decided

Diet Standards LLC (OTA Case No. 230613542, decided October 7, 2025)

A Delaware LLC based in Florida sold dietary supplements through FBA. During 2019, it had approximately $14,000 in California sales and around $2,330 in inventory held in California warehouses — both well below the state’s factor-presence thresholds. The OTA ruled that didn’t matter.

Physical presence through FBA inventory satisfies the “doing business” definition under Revenue and Taxation Code section 23101(a), independently of the economic thresholds. The LLC owed California’s $800 annual minimum LLC tax plus penalties and interest.

Fishbone Apparel, Inc. (OTA Case No. 230212546, published March 2026)

A Pennsylvania corporation selling clothing through Amazon’s FBA program was found liable for California’s $800 minimum franchise tax and $800 minimum income tax for 2019, plus penalties and interest — on just $9,403 in California sales.

The CDTFA had flagged the business for sales tax nexus in December 2018 based on its California FBA inventory. The Franchise Tax Board used that same information to separately assess franchise and income tax liability. Fishbone argued it had no California filing requirement, no business property in the state, and no nexus. The OTA disagreed.

That last point matters: California tax agencies share data. If the CDTFA knows you have FBA inventory in California, the FTB likely does too.

What changed

• Previous assumption (widely held): If your California sales, property, and payroll stayed below California’s factor-presence nexus thresholds, you had no California franchise or income tax obligation.
• What the courts confirmed: Those thresholds are not a safe harbor. Physical presence through FBA inventory satisfies the “doing business” definition under section 23101(a) independently of the economic thresholds. Any amount of inventory in California fulfillment centers creates franchise and income tax nexus — separate from and in addition to your sales tax obligations.
• How far back this reaches: These rulings address 2019 tax years, but California’s position is not new. Any year your FBA inventory was stored in California is a potentially open year.

Why Amazon collecting sales tax doesn’t solve this

Amazon remits California sales tax on marketplace sales as a marketplace facilitator. That covers your sales tax obligation on those transactions. It does not touch franchise tax or income tax — those are entirely separate obligations filed with the California Franchise Tax Board, not the CDTFA.

It’s also worth noting that both OTA cases address the 2019 tax year, before California’s marketplace facilitator law was fully in effect. The sales tax landscape for FBA sellers has changed since then — Amazon now collects and remits on your behalf. The franchise and income tax exposure has not changed.

Most FBA sellers have never filed a California franchise or income tax return. If your inventory has been in California fulfillment centers, you likely should have been.

A note on PL 86-272

Some sellers believe that federal Public Law 86-272 protects them from state income tax — it prohibits states from taxing the income of out-of-state businesses whose only in-state activity is soliciting orders for tangible personal property. Storing FBA inventory in California goes beyond mere solicitation. PL 86-272 protection almost certainly does not apply to FBA sellers with California warehouse exposure. Confirm with a tax advisor.

Who this affects

• Out-of-state FBA sellers with inventory in California fulfillment centers. If Amazon has stored your goods in California at any point, you likely have had franchise or income tax nexus for those years, even if your California sales were minimal. Fishbone Apparel owed tax on $9,403 in sales.
• LLCs using FBA. California’s minimum LLC tax is $800 per year. No profit required. No minimum sales threshold. Just inventory in the state.
• Corporations using FBA. California’s minimum franchise tax is $800 per year. If the OTA also finds income tax nexus, that is an additional $800 minimum.
• Multi-year FBA sellers. If your inventory has been in California fulfillment centers for three, four, or five years without filing, your exposure compounds. Penalties and interest apply on top of the tax itself.
• Sellers who believe the factor-presence thresholds are a safe harbor. They are not. The OTA confirmed there is no minimum inventory value or sales volume that exempts you from the “doing business” standard under section 23101(a).
• CPAs advising ecommerce clients using FBA. Pull Amazon Inventory Event Detail Reports for any FBA clients and check for California fulfillment centers across open tax years.

What sellers should do right now

• Pull your Amazon Inventory Event Detail Report. This shows which fulfillment centers stored your inventory and for which periods. If California locations appear, you have likely had franchise tax nexus for those years.
• Do not assume you are below the threshold. The OTA confirmed there is no minimum inventory value or sales volume that creates a safe harbor for franchise tax. Any FBA inventory in California creates nexus — and with it, at minimum an $800 annual tax obligation.
• Assess how many years are open. California’s standard look-back is four years from the return due date, but unfiled years extend that window further.
• Do not assume Amazon’s sales tax remittance covers you. It does not. Franchise and income tax returns must be filed separately with the California Franchise Tax Board.
• Talk to a tax advisor before self-reporting. If you have multiple years of unfiled returns, a voluntary disclosure agreement may limit penalties and the look-back period. Filing retroactively without one can expose the full open period.

If you use TaxCloud: TaxCloud handles California sales tax calculation and filing for your ecommerce transactions. California franchise and income tax obligations for FBA sellers are separate from sales tax and require action with the California Franchise Tax Board directly. If this is new information for your business, contact a tax advisor to assess your exposure before filing anything.