Inventory in a U.S. Warehouse
A pallet of goods sitting on a shelf in a fulfilment centre does not look like a decision. It looks like logistics, something Amazon handles so the seller does not have to think about it. Under U.S. tax law, that pallet is frequently the single fact that separates a foreign seller with no reason to file anything from one with a return due, and the seller usually did not choose the shelf it sits on.
The inventory you cannot actually locate
A seller enrolling in Fulfilment by Amazon ships cartons to one or a handful of receiving centres. What happens after that is decided by Amazon's own placement logic, not by the seller. Amazon distributes stock across its fulfilment network based on projected demand by region, current capacity at each node, and shipping cost, and it moves inventory between warehouses on its own schedule to keep delivery times short. A unit purchased by a customer in Ohio may ship from a facility in Kentucky today and from one in Texas next month, for reasons that have nothing to do with anything the seller did.
Sellers can pull an inventory ledger and a handful of placement and fee reports that show where stock has been at various points, but there is no live, seller-controlled map of "my goods are in these three buildings and nowhere else." Much FBA inventory is also commingled, meaning identical units from different sellers of the same product are pooled and treated as interchangeable, so that the specific carton a seller shipped is not necessarily the carton that ships to any given buyer. A seller who opts out of commingling, using "stickered" inventory with a unique barcode, at least keeps its own units distinguishable, but even then it does not choose which of Amazon's facilities holds them.
This operational reality matters because two of the legal tests that determine whether a foreign seller has a U.S. tax presence, one under domestic law and one under a treaty, ask questions that were written with a business that controls its own premises in mind. FBA does not fit that picture cleanly, and the mismatch is where most of the genuine uncertainty in this fact pattern comes from.
The domestic question: trade or business within the United States
IRC §864(b) defines what it means to be engaged in a trade or business within the United States. Unlike the narrow exclusion the statute carves out for a non-resident trading in stocks, securities, or commodities for the taxpayer's own account under §864(b)(2), there is no general statutory safe harbor for a seller of goods who merely solicits or fulfils U.S. orders. Whether the threshold is met is a facts-and-circumstances determination under Treas. Reg. §1.864-2, and the activity has to be considerable, continuous, and regular rather than sporadic.
Maintaining a stock of merchandise within the United States and making regular sales from it has long been treated by the regulations and by IRS administrative practice as activity of that kind. The seller is not merely soliciting orders that are then filled from abroad. Goods are physically present in the United States, held there for the specific purpose of being sold to U.S. customers, and shipped from a U.S. location as a routine part of the sales process. None of that depends on which particular building holds the stock on a given day. It depends on the fact that stock is held in the United States at all, continuously, in support of ongoing sales.
Once the threshold is crossed, IRC §864(c)(3) does the rest of the work for a goods seller: with limited exceptions for certain investment-type income under §864(c)(2), all income from sources within the United States is treated as effectively connected with the trade or business. Where the sale is sourced, meaning where title to the goods actually passes, then becomes the relevant question for a seller who is engaged in a trade or business but wants to know whether a given sale's income is U.S. source in the first place. That sourcing analysis, and the rule that a fixed U.S. place of business can override the location of title passage, is a distinct inquiry addressed elsewhere. This piece is about presence, not sourcing.
Why the mechanics complicate the treaty answer, even though they do not remove the domestic one
A seller resident in a country with a U.S. income tax treaty, who qualifies for the treaty's benefits, is taxed on business profits only if those profits are attributable to a U.S. permanent establishment under the treaty's Article 5. A permanent establishment generally requires a fixed place of business through which the enterprise's business is wholly or partly carried on.
The Commentary to the OECD Model Tax Convention, on which most U.S. treaty interpretation draws even where the treaty itself follows the U.S. Model, has long read "fixed place of business" to require that the place be at the disposal of the enterprise, meaning the enterprise has some effective power to use it and is not simply present as an invitee. An enterprise renting a dedicated warehouse and stationing its own staff there plainly has a place at its disposal. Whether a seller has a fixed place of business at its disposal inside a fulfilment centre it does not select, cannot enter, and shares in a commingled pool with thousands of other sellers is a genuinely closer question, and reasonable positions exist on both sides of it. That is precisely the ambiguity the mechanics described above create.
Article 5(4) of most U.S. treaties then adds a specific carve-out that matters directly to warehousing. Older treaties, following the pre-2017 OECD and U.S. Model language, exclude from the permanent establishment definition the use of facilities solely for storing, displaying, or delivering goods belonging to the enterprise, and the maintenance of a stock of the enterprise's goods solely for storage, display, or delivery. In that older drafting, those specific activities are excluded outright, without a separate requirement that they also be preparatory or auxiliary in character.
Treaties updated after the OECD's Base Erosion and Profit Shifting Action 7 report, and the 2016 U.S. Model Income Tax Convention, changed that structure. The storage, display, and delivery exclusions still exist, but they are now subject to an overall qualifier: the activity has to be preparatory or auxiliary to the business as a whole. A pure storage function still generally qualifies. A facility that also handles picking, packing, labeling, returns processing, and customer-facing logistics as the effective centre of the seller's U.S. fulfilment operation is a harder case, because those functions start to look like a core part of the business rather than something merely preparatory to it. The BEPS-era treaties also added an anti-fragmentation rule, which aggregates the activities of closely related enterprises carried on at the same location, or at different locations in the same state, so that a business cannot avoid a permanent establishment by splitting an otherwise cohesive operation into several formally separate, individually auxiliary pieces.
Which version of Article 5(4) applies to a given seller depends entirely on which treaty is in force and whether it has been renegotiated since 2017. Sellers relying on an older treaty and sellers relying on a BEPS-updated one can reach different conclusions on identical facts, and that is not an inconsistency in the law so much as a reflection of two different generations of treaty drafting sitting side by side.
What FBA-specific facts tend to matter
Within either version of the analysis, a handful of facts recur in how the position is actually built. How much of total U.S. sales volume runs through FBA versus a seller-controlled warehouse or 3PL changes the picture, because a seller with other U.S. footprint is analysed on the combination of everything it does here, not FBA in isolation. Whether the seller uses Amazon exclusively for storage and shipping, or also uses FBA's returns processing, repackaging, and removal order services, affects whether the activity stays within a storage-and-delivery description. Multi-channel fulfilment, where a seller has Amazon ship inventory out to fulfil orders placed on the seller's own Shopify store or another marketplace, adds a distribution function on top of storage that some positions treat differently from FBA's ordinary marketplace fulfilment. And the presence or absence of any U.S. person, whether an employee, a contractor, or an agent with authority to act on the seller's behalf, sits alongside the warehouse question rather than replacing it.
| Question | What it asks | Governing authority |
|---|---|---|
| Domestic trade or business | Is U.S. activity, including inventory held and sold from a U.S. location, considerable, continuous, and regular | IRC §864(b), Treas. Reg. §1.864-2 |
| Effectively connected income | If engaged in a U.S. trade or business, is the income U.S. source | IRC §864(c)(3) |
| Treaty permanent establishment | Is there a fixed place of business at the seller's disposal, and does the storage exception still apply given the actual functions performed there | Treaty Article 5, OECD Commentary |
| State net income tax | Does the activity exceed solicitation, given that inventory held in the state generally does | Public Law 86-272, 15 U.S.C. §381 |
The state-level consequence runs on its own track
State income and franchise tax nexus is a separate body of law from both the federal trade-or-business test and any treaty, and it deserves fuller treatment than a summary can give it. The single point worth flagging here, because it follows directly from the inventory mechanics already described, is that Public Law 86-272 protects a business from a state's net income tax only where its in-state activity is limited to solicitation of orders for tangible personal property that are approved and filled from outside the state. Holding a stock of goods within a state for fulfilment is, on its face, activity beyond solicitation. An FBA seller with inventory sitting in a given state generally cannot rely on that protection in that state, regardless of how the federal or treaty questions come out. This is a distinct filing exposure that runs state by state and does not track the federal answer, and it sits alongside, not inside, the sales tax collection obligations a foreign seller separately has to manage under each state's own registration rules.
What a seller can actually document
The uncertainty in the legal tests does not mean the facts are unknowable. Amazon's Seller Central reporting includes inventory event history, fulfilment centre-level stock reports, and removal and reimbursement records that, taken together, let a seller reconstruct where its inventory sat over a given period, even if it could not have predicted or controlled that placement in advance. Pulling and retaining those reports periodically, rather than trying to recreate a year's history from memory after a filing question arises, is the practical foundation any position on this fact pattern is eventually built from. The same is true of records showing how much of total sales volume moved through FBA specifically, whether multi-channel fulfilment was used, and whether any person acted on the seller's behalf inside the United States during the period in question.
Filing follows from the domestic threshold, not from how the treaty question resolves
A seller who concludes, correctly or not, that no treaty permanent establishment exists still has to address the domestic question directly, because U.S. filing obligations are triggered by domestic law and a treaty position is a claim made on a return, not a substitute for filing one. A foreign corporation engaged in a U.S. trade or business generally files Form 1120-F. Where the analysis is genuinely uncertain, a protective return under Treas. Reg. §1.6012-2(g) preserves the right to claim deductions and treaty benefits if a later examination determines that a U.S. trade or business or permanent establishment did in fact exist, since those benefits are otherwise available only where a timely return was filed. A treaty-based position that reduces or eliminates U.S. tax, including a no-permanent-establishment position, generally has to be disclosed under IRC §6114 on Form 8833, and the penalty for failing to disclose a required treaty position runs $10,000 for a corporation under IRC §6712 for each failure.
This is general information about how the trade-or-business, permanent establishment, and state nexus rules apply to marketplace-fulfilled inventory as of the date written. It is not advice on any particular seller's facts, and a position on whether a specific fulfilment arrangement creates a U.S. presence should be built from that seller's own records rather than from a general description of the rule.