Back in August, after South Carolina contended that Amazon owes over $12.5 million in past due sales tax on behalf of 3rd party sellers, Amazon filed suit against the state. Yesterday, the fight intensified when South Carolina filed a motion to request Amazon begin collecting sales tax on behalf of all 3rd party sellers using it’s platform within the next 10 days.
What is South Carolina’s Reasoning?
South Carolina is aggressively going after sales tax owed to them in one way or the other. They reason that somebody should be collecting sales tax on 3rd party sales through the Amazon platform, and they think that that somebody is Amazon. However, they are also realistic in stating that their current lawsuit could take up to five years to pursue, and that they may even have to take Amazon all the way to the Supreme Court before the issue is finally settled.
The proposal put forth in this motion, filed yesterday, orders Amazon.com to collect sales tax on all 3rd party sales to South Carolina, and place the money in a trust. The money – which South Carolina contends is theirs no matter the outcome of the lawsuit – will be remitted to the South Carolina Department of Revenue once the lawsuit is resolved.
South Carolina proposes this remedy because, as they say in the motion, somebody owes the sales tax, whether it is Amazon.com or 3rd party sellers using the platform. Even if the lawsuit results in Amazon.com winning and it turns out they were not liable to collect sales tax, that would result in 3rd party sellers on the hook for paying back years of uncollected sales tax. And any action by South Carolina to collect that back sales tax from Amazon’s 3rd party sellers could harm those businesses.
If sales tax is currently placed into a trust, South Carolina proposes, then the funds will be there so that either:
- the sales tax funds can be remitted to South Carolina’s Department of Revenue immediately if they win the lawsuit against Amazon
- 3rd party Amazon sellers aren’t substantially harmed by having failed to collect sales tax in the event that South Carolina loses the lawsuit against Amazon
What’s next in South Carolina’s Amazon sales tax fight?
Next, a judge will decide whether to grant this motion and force Amazon to begin collecting sales tax on behalf of 3rd party sellers in the state. We’ll be watching this story very closely to see what happens!
At TaxJar, our thoughts are that anything that will prevent online sellers from facing a huge sales tax penalty is ultimately a good thing. If this motion goes South Carolina’s way, then Amazon FBA sellers will have one less state to worry about when it comes to remitting sales tax.
I also want to caution that this lawsuit, whatever the outcome, only affects Amazon 3rd party sales tax in South Carolina. Other states, like Massachusetts, are taking a different measure and asking Amazon to share 3rd party seller info so that the Massachusetts Department of Revenue can pursue noncompliant sellers. And California recently sent a new round of letters to Amazon FBA sellers asking for proof of sales tax compliance. When deciding when and if to be sales tax compliant as an Amazon FBA seller, it’s still a good idea to look at each state individually. If you want professional advice, we suggest contacting one of these vetted sales tax pros.