States Are Battling Sales Tax Loopholes for Amazon Vendors

Starting December 1, shoppers on Amazon will most likely have to pay sales taxes on goods purchased from third-party merchants, in addition to paying tax on those bought directly from Amazon. That’s because, on that date, at least some vendors will begin collecting taxes to receive partial amnesty from back taxes in almost half of the U.S. states, including Florida, New Jersey and Texas. The deadline for the partial amnesty deal is October 17, so it is not yet clear how many merchants will take it.

Bloomberg reports that, “all signs point to the eventual closing of long-standing loopholes that let you buy stuff online without paying sales tax.”

“We’ve been waiting many years for the federal government or the courts to tackle this issue and they haven’t,” said Minnesota Senator Roger Chamberlain. “It’s a fairness issue. Right now, there’s an unlevel playing field that disadvantages brick-and-mortar stores.”

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President Trump also tweeted in August that Amazon was causing “great damage to tax paying retailers.” Amazon has stated its preference for “one federal law governing sales tax collection rather than a state-by-state patchwork.”

The rules followed today are based on a 25-year old U.S. Supreme Court case, Quill v. North Dakota, which barred the states from forcing Quill to “levy sales tax because the mail-order office-supply operator lacked a physical presence in the state.” But, as Amazon built warehouses around the country, thus establishing a physical presence in many states, it began collecting sales tax “on inventory it owns directly in all states that levy such taxes.” That doesn’t account for “about half its sales” from 2 million merchants that post on Amazon, which “leaves tax collection up to them.”

The Supreme Court hasn’t revisited Quill v. North Dakota and Congress hasn’t been able to pass any new laws, so “the tax revenue lost to online sales continues to grow.” As a result, it’s become a state-by-state decision. But experts disagree on “who will be responsible for collecting and remitting the taxes when someone buys something from a third-party seller” on Amazon, and “states are using different tactics to collect.”

South Carolina took Amazon to court for $12.5 million, and Minnesota “enacted the country’s first law requiring companies like Amazon and EBay Inc. to collect sales taxes on goods sold by third-party sellers,” requiring the companies to comply in 2019. Washington state enacted a similar law that takes effect in January.

Bloomberg spoke to several third party vendors that believe “Amazon should be required to handle taxes for sales on its marketplace,” because “Amazon is like a traditional retailer while they’re like suppliers.” They add that, “collecting sales tax is an unfair burden on small businesses because it would require them to file every month in multiple states and taxing districts that each have their own rates and peculiarities.”

They also fear that states will turn to them “because they’re easier targets than Amazon, which can afford a protracted legal fight.”