Gone is the need to speculate about where and when Amazon will next collect; come April 1, 2017, the ecommerce giant will tax deliveries into Hawaii, Idaho, Maine, and New Mexico and be registered in 45 states plus the District of Columbia. Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have a general sales tax.
When the largest ecommerce seller in the world makes a move like this, it sparks questions.
Do other ecommerce sellers now have to start collecting tax?
What about Amazon’s third-party sellers?
Will this impact state tax policy?
There are simple answers to some of these questions, yet sales tax rules for ecommerce sellers remain anything but simple. Read on to learn what Amazon’s decision does and doesn’t mean for your business.
Do other ecommerce merchants now have to collect sales tax?
Amazon’s decision does not mean other merchants now have to collect. State nexus rules still apply: A business only has to collect state sales tax when it has a specific type of connection to a state, such as in-state employees, inventory, or infrastructure. eBay and many other sellers are adamantly opposed to collecting where they lack nexus.
How will this impact Amazon third-party sellers?
Amazon’s decision does not immediately impact tax policy for its third-party sellers; like other remote vendors, FBA sellers are required to collect only where they have nexus. Since a third-party seller’s property in an Amazon fulfillment center creates nexus for that seller, FBA sellers have nexus in any state where Amazon stores its products. Of course, Amazon doesn’t have a warehouse in every state where it now collects, which means that FBA sellers need to know not only where their product is stored, but also where Amazon has or will have a warehouse.
However, there are many who believe this move by Amazon will eventually expose the identity of Amazon’s third-party sellers, many of whom have long been flying beneath the radar of state tax officials, who know they exist but have lacked the resources to find them.
Every state where Amazon has a physical presence potentially has a right to a list of the company’s FBA sellers; this information can be obtained by a request or a limited audit. Once they have it, the states will share that information with other states due to formal or informal information sharing agreements. Whether they were intentionally hiding or not, FBA and other third-party vendors will likely now be found.
According to Amazon, almost half of the products it sells are from third-parties; more than 100,000 third-party vendors each sell more than $100,000 annually on Amazon.com. Max Behlke, director of budget and tax policy for the National Conference of State Legislatures, says, “Whatever a state is getting in sales tax from Amazon, it should probably be getting about twice that much.” Once states develop a taste for Amazon sales tax revenue, chances are they won’t want to leave that additional revenue on the table.
Will this impact state tax policy?
The fact that Amazon is voluntarily collecting in so many states could create a renewed sense of purpose and fuel state efforts to capture more tax revenue from remote sales, i.e, any sale that doesn’t occur over a counter (e.g., catalog, internet, mail, and phone sales).
Numerous states have already enacted affiliate nexus, click-through nexus, or economic nexus laws whereby a business can establish the obligation to collect state and local sales tax through ties to in-state affiliates, referrals from in-state businesses (links on websites), or simply doing a certain amount of business in the state. Several more state legislatures are considering such policies this session, including Maryland and North Dakota.
What does this mean for you?
Unless you’re Amazon, the company’s decision to collect tax where it lacks nexus won’t impact you now. Depending on your business, however, it could impact you down the road.
Yet many ecommerce merchants don’t realize that they already have sales tax obligations when they make remote sales. All remote vendors should keep abreast of state nexus policies — those already in effect and those under consideration. It is essential to know where you already have nexus and should be collecting and remitting tax. If you are a third-party seller on Amazon, this means you should closely monitor where Amazon has a physical presence and an obligation to collect.
Avalara Professional Services tax experts stand ready to help evaluate your company’s business practices to determine where you need to register. Learn more about nexus and see recent trends in remote seller nexus at our Nexus Resource Center.