How to Start an Amazon Seller Business

Choose a Business Structure

Most sellers on an online marketplace start as an LLC rather than a sole proprietorship, given the product liability exposure that comes with selling physical goods to the public. An LLC separates your personal assets from a product liability claim or business debt, which is worth the modest formation and ongoing cost for most sellers planning to scale.

Get an EIN

Apply for a free Employer Identification Number from the IRS once your structure is set. Marketplace seller accounts generally ask for a taxpayer identification number during setup, and using an EIN instead of your personal Social Security number keeps that separation intact from day one.

Understand Marketplace Facilitator Sales Tax Rules

Most states have marketplace facilitator laws requiring large online marketplaces to collect and remit sales tax on behalf of third-party sellers using their platform. This means a significant share of your sales tax obligation on marketplace sales may already be handled by the marketplace itself in states with these laws. You can still need your own sales tax registration if you also sell directly through your own website or other channels, so don't assume marketplace sales cover every obligation automatically.

Know That Stored Inventory Can Create Its Own Nexus

Separate from the marketplace facilitator rules, physically storing inventory in a state generally creates "physical nexus" there under long-standing sales tax rules. If you sell through Amazon and it distributes your inventory across fulfillment centers in multiple states, you can have nexus in each of those states for purposes beyond sales tax collection on marketplace sales, including potential state income or franchise tax filing obligations. Check where your inventory is actually held and confirm what obligations, if any, that creates in each state.

Register for Sales Tax Where You Still Need To

If you sell directly through your own website, at in-person events, or through channels that aren't covered by a marketplace facilitator law in a given state, register for that state's sales tax permit separately. This typically applies once you have nexus there, either physically or by exceeding that state's economic nexus threshold.

Expect a Form 1099-K Once You Cross the Threshold

Per the IRS, a marketplace or payment network generally issues Form 1099-K to a seller who receives more than $20,000 and completes more than 200 transactions for goods or services in a calendar year. Reconcile the 1099-K you receive against your own sales records at tax time, since it reports gross payment volume, not your profit after marketplace fees, shipping, and cost of goods.

Keep Clean Records of Fees and Costs

Marketplace selling involves fees, referral fees, fulfillment fees, advertising costs, that reduce what you actually keep from each sale. Track these separately from your gross sales so your accounting reflects actual profit, which is what you're taxed on, not the gross amount a 1099-K reports.

Check Product-Specific Requirements

Some product categories, like food, cosmetics, children's products, and electronics, carry their own federal safety or labeling requirements regardless of where you sell them. Confirm your specific products meet any applicable federal requirements before listing them for sale.

Don't Assume the Marketplace Handles Every Tax Obligation

Marketplace facilitator laws generally cover sales tax collection and remittance on marketplace sales, but they don't necessarily cover income tax, franchise tax, or obligations tied to stored inventory creating nexus. Treat marketplace tax collection as one piece of your compliance picture, not the whole picture.

Selling Through Multiple Channels Adds Complexity

If you sell through a marketplace and your own website, keep clear records of which sales came through which channel, since your own sales tax obligations may differ between them even in the same state.

A 1099-K Doesn't Always Mean You Owe More Tax

Receiving a 1099-K reports gross payment volume; it doesn't account for marketplace fees, returns, shipping costs, or the cost of the goods you sold. Make sure your tax return reflects actual net income, not the gross figure on the form, which a tax professional can help reconcile.

This Is Not Legal or Tax Advice

Which states you have nexus in, and what that nexus requires beyond sales tax, depends on your specific inventory locations and sales volume. Talk to a tax professional familiar with multi-state e-commerce if you sell through a marketplace that distributes inventory across several states.

Keep Your Entity in Good Standing as You Scale

As a marketplace selling business grows, keep your state annual report, registered agent, and any required licenses current. A lapsed filing can create complications renewing seller account information tied to your business entity.