Amazon SC States

Should Amazon Sellers Cancel their South Carolina Sales Tax Permits?

by Jennifer Dunn

South Carolina Amazon lawsuit

South Carolina is going to bat against Amazon, contending that Amazon – and not it’s 3rd party sellers – is the responsible party when it comes to collecting sales tax from South Carolina customers.

We’ve recently had customers ask us if this means they can cancel their South Carolina sales tax permits and stop collecting sales tax in the state.

To answer this question, we reached out to the South Carolina Department of Revenue and several sales tax experts to see what information they had to share.

What South Carolina Has to Say

Here’s exactly what the South Carolina Department of Revenue’s Litigation Department is sending sellers who ONLY sell on Amazon.com:

“It is our understanding that you are a third-party supplier of products sold on Amazon.com. If this is correct, then you are not the retailer; South Carolina law deems Amazon the retailer responsible for collecting and remitting sales and use tax for these online sales. However, if you sell tangible personal property in South Carolina by means other than with Amazon, please advise the Department so we may register you as a South Carolina retailer for those sales.
As you may be aware, Amazon Services, LLC has filed a legal challenge to South Carolina’s law, stating it is not the retailer responsible for collecting and remitting sales tax for third-party supplier products. However, Amazon does not dispute that sales and use taxes are owed for these online sales. To protect against any potential past or future sales and use tax liability for the online sales of your products on Amazon.com, you should contact Amazon and direct them to begin collecting and remitting sales and use tax on all sales of your products to South Carolina customers.”
That seems pretty straightforward, right? If you are only an Amazon FBA seller, then South Carolina’s law says that you are not responsible for sales tax collected. But if you sell on other channels and have sales tax nexus in South Carolina, you should register for a South Carolina sales tax permit. (Here’s what state law has to say about what creates South Carolina sales tax nexus.)
The only nitpicky issue is this:
“However, Amazon does not dispute that sales and use taxes are owed for these online sales. To protect against any potential past or future sales and use tax liability for the online sales of your products on Amazon.com, you should contact Amazon and direct them to begin collecting and remitting sales and use tax on all sales of your products to South Carolina customers.”
Sales and use tax is due on those sales, and right now Amazon is not collecting that sales tax, and is litigating to establish that they are not responsible for sales tax. We reached out to some experts to find out how they are working with the state of South Carolina on this issue.

What the Experts Have to Say

Sylvia Dion from PrietoDion urged caution: “The South Carolina DOR, in interpreting its own laws, concluded that Amazon Services (Amazon’s retail entity) is in fact the retailer of all products sold on its website and is therefore required to collect and remit tax on all South Carolina sales including those made may third party sellers. But Amazon is challenging this assessment and the DOR’s position.  Unlike what we saw in Washington, where an actual marketplace facilitator law was enacted, as of now, South Carolina has not enacted a similar law.  I would advise clients that until this is fully settled by the courts or an actual law is enacted imposing the collection obligation on Amazon, third party sellers should continue to collect, report and remit.”

Mike Fleming from Peisner Johnson put it more bluntly: “South Carolina told us not to have anyone deregister. They said that if they lose the court case where they are suing Amazon- then they will be pursuing sellers. Someone has to be responsible for the tax, so if it’s not Amazon it’s the seller. They said it could take up to five years to work out. Five years is a long time to find out if you are responsible [for sales tax] or not.”

Many seller have asked if Amazon might treat South Carolina like they did Washington, where Amazon now collect sales tax on behalf of 3rd party sellers. Drew Simek of Simek Tax told us, ”

I would hesitate to advise clients to cancel sales tax permits at this time, especially with litigation ongoing.  This is similar to the position taken by Washington last year.  Eventually, Washington and Amazon came to an agreement that Amazon would begin collecting on behalf of third party sellers as of 1/1/2018.  Until the South Carolina case has been resolved through the courts or an agreement is reached between the state and Amazon, it is likely best for registered companies to continue to collect and remit the tax.”

When it comes to new sellers registering for a sales tax permit, Lauren Stinson of Windward Tax says “South Carolina has made their position [that Amazon FBA sellers are not responsible for collecting sales tax on Amazon sales] pretty clear, so we are following their lead.”

As you can see, even the experts are divided on the plan of action at this point.

What should Amazon FBA sellers do next?

We asked the South Carolina Department of Revenue  what they thought, and they recommend sellers contact them if they want a ruling on this matter. They request that sellers provide the Department with the following information:

1.            How are your products sold to South Carolina customers (i.e. online, brick-and-mortar stores, consignment sales, etc.)?
2.            If your products are sold online, please list all websites through which your products are sold.
However, experts in the sales tax field agree that you should be careful how you provide information to a state. It’s a good idea to always work with a sales tax expert to prevent surprises, especially if you have past due sales tax liability.
Do you have questions or something to say about the sales tax battle between South Carolina and Amazon? Start the conversation in the comments!
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