South Carolina has issued a new interpretation of their sales tax laws, alleging that Amazon owes sales tax on the sale of 3rd party products. Amazon disagrees and has sued the state’s Department of Revenue. This is an interesting turn of events and could help Amazon FBA sellers with sales tax nexus in South Carolina (and, in the future, beyond SC) should the suit fail.
What’s the deal with Amazon suing South Carolina?
South Carolina alleges that Amazon is responsible for collecting sales tax on behalf of 3rd party sellers. Specifically, South Carolina contends that Amazon owes $12.5 million in taxes, penalties and interest for the first quarter of 2016. It’s unclear exactly why they chose that period to base the lawsuit on, but that is the first quarter that Amazon was required to collect sales tax in the state. (While Amazon already had facilities in SC at that time, they worked out a tax deal to avoid collecting sales tax until January 1, 2016.)
On a side note, South Carolina did require Amazon send out letters to Amazon buyers located in South Carolina in early 2016. These letters were intended to remind South Carolina buyers of their obligation to pay use tax on any items for which they did not pay sales tax. However, that was before Amazon.com itself was required to collect South Carolina sales tax.
Regarding the lawsuit, Amazon has said that South Carolina’s argument is without merit and that they will defend themselves vigorously.
What does this mean for Amazon 3rd party sellers?
In my view, this means two things for Amazon 3rd party sellers:
- If the suit fails, Amazon may be on the hook for collecting sales tax from SC buyers – This would be tremendous good news for 3rd party sellers as it would relieve them of one of their administrative obligations – collecting, reporting and filing sales tax. On the other hand, it would also likely cause Amazon to either increase fees for sellers selling on the platform or increase prices on Amazon.com in general, digging into it’s competitive advantage. (Which a lot of state governments and brick & mortar stores would also appreciate, since they feel that Amazon is costing them sales tax.)
- There’s another contender in the “internet sales tax” battle – This is yet another court battle, which now joins several state laws and federal laws on the table as a way to fundamentally change the way sellers collect sales tax in this country. A lawsuit originating in South Dakota is challenging the precedent set by Quill v. North Dakota. And now this battle, which may similarly wend it’s way to the Supreme Court, adds another wrinkle to internet sales tax. To vastly simplify, the South Dakota lawsuit contends that all sellers must collect sales tax from buyers in all states. The South Carolina lawsuit is fighting the contention that Amazon, not 3rd party sellers using the platform, must collect and remit sales tax. Between all these laws and lawsuits, something is bound to happen when it comes to sales tax. Stay turned right here as we cover it!
I hope this article sheds some light on the South Carolina lawsuit against Amazon. Have questions or something to say? Start the conversation in the comments!