Does Amazon FBA Make a Non-Resident Taxable in the US?

TL;DR

No regulation, ruling or case addresses Amazon FBA directly. The question is whether US activity is considerable, continuous and regular — including activity through an agent. The two authorities most often cited for the comfortable answer do not hold what they are quoted as holding, and where a treaty applies the analysis is far stronger than most sellers realise.

What the standard actually is

“Engaged in a trade or business within the United States” is nowhere defined. IRC §864(b) does not define it — it adds personal services to the definition and then carves out two things only: trading in securities and trading in commodities.

Regulation §1.864-2(e) is explicit that falling outside a carve-out proves nothing:

failing a carve-out “is not to be considered a determination that such person is engaged in trade or business within the United States”

So the test is judge-made. Across Pinchot, Lewenhaupt, De Amodio, Adda, Balanovski and InverWorld, it comes out as activity that is considerable, continuous and regular — carried on directly or through an agent.

The most recent significant development is YA Global Investments, 161 T.C. No. 11 (2023), which frames agency attribution using the Restatement (Third) of Agency: assent, plus the principal’s power to give interim instructions. That last element is the one to think about with a fulfilment provider.

The two things everyone gets wrong

This is where the published guidance on FBA breaks down, and it breaks down in the same two places almost every time.

Handfield does not say what it is cited for

Handfield v. Commissioner is the case invariably produced to show that consignment inventory creates a US trade or business. Read it properly and three things emerge:

1. The Tax Court reached its conclusion through a treaty permanent establishment finding under ¶3(f) of the 1942 US–Canada Protocol — a provision that expressly made “a stock of merchandise from which he regularly fills orders” a permanent establishment.
2. No modern treaty contains that rule. Today’s Article 5(4)(b) does the opposite: it excludes a stock of goods maintained solely for storage, display or delivery.
3. Handfield also had a US employee checking displays.

On today’s treaty text, Handfield’s own facts would likely come out the other way. Citing it as authority for FBA is citing a repealed rule.

The independent-agent regulation is circular as applied

The other pillar of the comfortable answer is Reg. §1.864-7(d)(2)–(3)(i), which says an agent who “sells goods or merchandise consigned or entrusted to his possession” is an independent agent, and that his stock of goods is not attributed to the principal. That language does look made for FBA.

But §1.864-7(a)(1) applies only to a taxpayer “that is engaged in a trade or business in the United States.” The regulation presupposes ETBUS and then governs how income is attributed under §864(c)(4)(B). It does not decide whether you are engaged in a trade or business in the first place.

Using it to answer the threshold question assumes the conclusion. This is the central analytical error in the FBA literature.

What cuts the other way

Honesty requires the adverse authority too.

AM 2009-010 considered a foreign corporation with no US office and no US employees, no treaty, using an unrelated US contractor with no authority to contract. The IRS concluded the foreign corporation was engaged in a US trade or business, attributing the agent’s activity “whether dependent or independent.”

InverWorld likewise attributed the activity of an entity that was “nominally an independent contractor.”

And a well-credentialed international tax lawyer, Andrew Mitchel, published a direct rebuttal of the mainstream FBA position in 2017, concluding it carries substantial ETBUS risk.

The market consensus is not as settled as it is sold. Anyone telling you FBA plainly does not create a US trade or business is stating a position, not a rule.

Where the treaty analysis is genuinely strong

If you are resident in a country with a US income tax treaty, this is the part worth knowing — and it is better for you than the equivalent analysis in most of the rest of the world.

The 2016 US Model Treaty retains the Article 5(4) exclusions unconditionally:

“the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise” “the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery”

The phrase “preparatory or auxiliary” appears only in subparagraphs (e) and (f) — the residual catch-all and the combination rule. It does not qualify the storage and delivery exclusions.

That matters because BEPS Action 7 rewrote these exclusions elsewhere in the world to be conditional on the activity being preparatory or auxiliary, and added an anti-fragmentation rule. The United States did not adopt it, and is not a party to the Multilateral Instrument. The newest US treaty in force — US–Chile, effective December 2023 — carries the same unconditional language.

The soft spot is the word “solely.” If the facility or the stock serves any purpose beyond storage, display or delivery, the exclusion is not available.

Disclosure follows. A no-permanent-establishment position is specifically enumerated in Reg. §301.6114-1(b)(5)(i) and must be disclosed on Form 8833. The penalty under §6712 is $1,000 for an individual, $10,000 for a corporation, and the individual de minimis threshold is too small to help here.

If your country has no treaty

Then there is no permanent establishment argument at all. The United States has no income tax treaty in force with Paraguay, for example — the IRS treaty list runs Pakistan, Philippines, Poland, Portugal, with nothing between.

A resident of a non-treaty country wins or loses on the trade-or-business question itself, on the merits. That does not make the answer worse in principle. It removes the second line of defence.

One point in the other direction for individuals: there is no US self-employment tax. IRC §1402(b) excludes non-resident aliens absent a totalization agreement.

The filing decision, and why it is not optional

Two mistakes are common here, and both are expensive.

If you conclude you ARE engaged in a US trade or business but treaty-exempt, the Form 1040-NR is mandatory, not protective. Reg. §1.6012-1(b)(1)(i) requires it even where the income is treaty-exempt.

If you conclude you are NOT, file a protective return anyway. This is authorised by Reg. §1.874-1(b)(6), and here is why it matters:

IRC §874(a) denies all deductions to a non-resident who does not file a true and accurate return.

If your no-ETBUS position is later rejected and you never filed, the tax is computed on gross receipts — not on profit. For a physical-goods seller with cost of goods sold running 50–70% of revenue, that difference is not marginal; it can exceed the entire margin.

The protective return is the cheapest insurance in this whole analysis.

What this is NOT about

• Not the Form 5472 question. That obligation is triggered by related-party transactions and applies whether or not you are engaged in a US trade or business. See “no activity” almost never means “no Form 5472”.
• Not §1446 withholding. The 37% figure quoted in seller forums comes from §1446, which reaches partnerships. A single-member disregarded LLC is not a partnership — Reg. §301.7701-2(c)(1) requires two or more members, and Reg. §1.1446-1(c)(2)(ii)(D) looks through to the owner. It does not apply to you.
• Not sales tax. Entirely separate, state-level, and it does not care about ETBUS or treaties. See sales tax for foreign sellers.
• Not answered by which state you formed in. A Wyoming LLC has no effect on this analysis.
• Not solved by title passage. Post-2017, §863(b) sources produced inventory on production activity; title passage still governs goods purchased for resale under §861(a)(6) — the ordinary FBA case. But source is not the same as tax: absent a US trade or business, US-source sales income is neither FDAP nor §871(b) income.

State tax does not follow the treaty

A treaty binds the federal government. States are not parties to US tax treaties, and most do not conform.

Public Law 86-272 — often raised as a shield — fails on the statute’s own face for an FBA seller. §381(a)(1) protects only solicitation of orders “filled by shipment or delivery from a point outside the State.” FBA fills from inside the state. The Multistate Tax Commission’s statement lists maintaining a warehouse, a stock of goods, and item 17 — “consigning stock of goods … to any person, including an independent contractor, for sale” — as unprotected activities.

So a seller can hold a defensible federal treaty position and still have state obligations.

How to approach the decision

1. Establish your treaty position first. Whether your country of residence has a US treaty changes which arguments exist.
2. Map your actual US activity. Not just inventory — any US-based contractor, prep centre, returns handling, or anyone who takes interim instructions from you.
3. Test against “solely.” If the US inventory serves any function beyond storage, display or delivery, the Article 5(4) exclusion narrows.
4. Decide the position deliberately, and write down why. A position you can articulate now is the reasonable cause narrative you may need later.
5. File. Form 8833 if you rely on a treaty; a protective 1040-NR if you rely on no-ETBUS. §874(a) is the reason.
6. Handle state exposure separately. The treaty does not travel there.

Frequently Asked Questions

Q: My accountant says FBA never creates US tax. Is that right? A: It is a position, not a rule. No authority addresses FBA directly, the IRS has attributed unrelated contractors’ activity in AM 2009-010, and respected practitioners disagree. Ask which authority the conclusion rests on.

Q: Does having a US LLC make the answer worse? A: Not by itself. A single-member LLC is disregarded, so the analysis runs to you personally either way. The entity changes your filing obligations, not the trade-or-business test.

Q: I sell on Amazon but ship from outside the US. Same answer? A: Different, and generally stronger. Without US inventory the principal fact pattern that creates the argument is absent, though any US-based personnel or agents still matter.

Q: What does the protective return cost me? A: The preparation, and nothing else — it reports no tax. What it buys is the preservation of your deductions under §874(a) if the position is challenged.

Next Steps

The FBA question is genuinely unsettled, which means the goal is not certainty — it is a defensible, documented position with the right filings behind it. Whether your country has a treaty, whether your US footprint is only inventory, and whether a protective return has been filed are the three things that determine how exposed you are, and all three can be established quickly.

This article is general information, not tax advice. This area contains genuinely contested questions on which practitioners differ. Have your specific facts assessed before adopting any position.