Amazon FBA (Fulfillment by Amazon) has made it easier than ever for entrepreneurs to sell products online. With Amazon handling storage, shipping, and even customer service, many sellers assume they can just list their products and watch the sales roll in.
But while FBA simplifies logistics, it doesn’t remove legal responsibilities. Many sellers overlook key legal issues—only to face account suspensions, lawsuits, or unexpected tax bills down the road.
If you’re an Amazon seller, it’s crucial to understand the legal risks involved and take steps to protect your business. Here’s what every FBA seller should know.
Contents
Trademark & Intellectual Property Risks
One of the biggest mistakes new FBA sellers make is failing to check for trademark conflicts before listing a product. Just because a product is available from a supplier doesn’t mean you have the right to sell it under a specific brand name.
How to Avoid Trademark Issues
- Search the USPTO Database: Before naming your product or brand, check the U.S. Patent and Trademark Office (USPTO) database to ensure your name isn’t already taken.
- Use Amazon’s Brand Registry: Registering your brand with Amazon can help protect against counterfeiters and unauthorized sellers.
- Avoid Copyrighted Images & Text: Using stock images, manufacturer descriptions, or other sellers’ content without permission can result in takedown requests or account suspensions.
Even if you’re selling generic, unbranded products, always verify that you’re not violating someone else’s intellectual property rights.
Product Liability & Consumer Safety
What happens if a customer gets injured using your product? Even if you source products from a third-party supplier, as the seller, you can be held liable for defects or safety issues.
How to Protect Yourself
- Sell High-Quality Products: Work with reputable manufacturers and conduct quality control checks.
- Get Product Liability Insurance: Some sellers assume Amazon covers liability, but in many cases, you’re responsible for legal claims.
- Follow Safety Regulations: Certain products (electronics, baby items, supplements) must meet safety standards. Make sure you comply with all regulations before listing.
If a customer files a lawsuit, having proper protections in place can make all the difference in keeping your business safe.
Tax Obligations for Amazon Sellers
Many Amazon sellers don’t realize that selling online still comes with tax responsibilities. Whether you’re selling as a side hustle or a full-time business, failing to handle taxes correctly can lead to financial penalties.
Understanding Sales Tax
Amazon collects and remits sales tax on behalf of sellers in some states, but not all. If you sell in multiple states, you may be required to register for a sales tax permit.
Do You Need to Pay Income Tax?
Amazon FBA earnings are considered business income. Depending on your location, you may need to pay:
- Federal Income Tax: Any profit you make from Amazon sales must be reported on your tax return.
- State Income Tax: If your state has income tax, you may owe additional taxes.
- Self-Employment Tax: If you’re running your FBA business as an individual, you may owe self-employment tax.
Consulting with a tax professional can help ensure you stay compliant and avoid unnecessary penalties.
Amazon’s Terms of Service & Policy Violations
Amazon has strict rules for sellers, and violating them—intentionally or not—can result in account suspensions or even permanent bans.
Common Amazon Policy Violations
- Inauthentic Complaints: If customers complain about product authenticity, Amazon may suspend your listing or account.
- Review Manipulation: Asking for only positive reviews or offering incentives for reviews violates Amazon’s policies.
- Multiple Seller Accounts: Amazon generally prohibits operating multiple accounts unless you have a valid business reason.
To avoid problems, always review Amazon’s seller policies and stay up to date on rule changes.
Business Structuring & Liability Protection
If your Amazon FBA business is generating consistent revenue, it may be time to think about structuring it properly. Many sellers start as sole proprietors but later realize that operating under a more formal business structure can offer advantages.
For example, some sellers choose to register their business as an LLC (Limited Liability Company) to help separate personal and business finances. While an LLC isn’t required to sell on Amazon, it can offer additional protection if legal or financial issues arise.
Amazon FBA is a great opportunity, but it’s not as simple as listing a product and collecting profits. Legal risks—trademark violations, product liability, tax obligations, and policy violations—can threaten your business if you don’t take the right precautions.
By understanding these potential pitfalls and putting the right protections in place, you can run a more secure and sustainable Amazon business.
