Amazon to collect Rhode Island sales tax, February 2017
- Jan 20, 2017 | Gail Cole
Rhode Island is the latest in a string of states to announce that ecommerce giant Amazon will soon collect and remit the state’s sales tax. Residents of Rhode Island will have tax applied to their Amazon purchases beginning February 1, 2017.
A trend of sorts began last fall, when officials in the District of Columbia revealed that Amazon would be collecting the district’s sales tax as of October 1, 2016. Shortly thereafter, Alabama announced that Amazon had agreed to comply with its Simplified Sellers Use Tax Remittance Act, which enables the company to collect and remit a flat 8 percent sellers use tax on Alabama transactions (instead of the varying combined state and local rates). On January 1, 2017, the online seller started applying tax to Iowa, Louisiana, Nebraska and Utah sales; and last week, news broke that Amazon will tax South Dakota transactions on February 1 and Wyoming sales starting March 1. Come March, Amazon will collect and remit sales and use tax in 36 states plus Washington D.C.
The right move for Main Street
As in other states, this is a voluntary move on Amazon’s part. Said Paul Grimaldi of the Rhode Island Department of Revenue, “We’re pleased that Amazon has stepped forward to voluntarily collect and send Rhode Island sales and use taxes. We believe that this is the trend across the U.S. and the right thing for the preservation of Main Street Rhode Island” (WPRI.com).
It’s certainly a step away from Amazon’s existing policy in Rhode Island. Currently, Rhode Island residents are prohibited from participating in Amazon’s Associates Program because of the state’s remote sales tax law. Back when the law took effect in 2009, Amazon frequently fought internet sales tax laws (often called Amazon tax laws). At the time, a company spokesperson called the Rhode Island law an “unconstitutional tax collection scheme.” Yet she also said Amazon wasn’t opposed to collecting sales tax — it just wanted “uniform standards across all states” (Providence Business News).
Amazon has re-opened its Associates Program in states where it started collecting tax. It did this in Minnesota in 2014 and Louisiana on January 1, 2017. If it follows that same pattern, Amazon will likely open the Associates Program up to Rhode Island residents once it begins collecting Rhode Island tax.
State and federal solutions to online sales tax
The United States Congress has the power to regulate how states treat interstate commerce, and numerous pieces of legislation that would grant states the right to tax certain remote sales have been introduced. In the spring of 2013, the Senate overwhelmingly passed the Marketplace Fairness Act of 2013 and sent it to the House for consideration. It died. New versions of the MFA have also stalled, as have other bills dealing with online sales tax: the Remote Transactions Parity Act, the Online Sales Simplification Act, and the No Regulation without Representation Act, which would codify the current practice of preventing states from taxing businesses lacking a physical presence in the state.
It’s not news that states are tired of waiting for a federal solution. Indeed, Rhode Island was one of the first to implement an affiliate nexus policy that allowed the state to tax companies based on their connection to in-state businesses or individuals. However, Rhode Island couldn’t tax Amazon transactions once the company severed its ties to in-state affiliates. As in all states with sales tax, consumers owe use tax if sales tax wasn't collected at the time of sale. Read more about Rhode Island's use tax.
State economic nexus laws impose a tax obligation on businesses that have a substantial economic presence in the state. In South Dakota, for example, sellers with no physical presence in the state that earn more than $100,000 from at least 200 sales of tangible personal property or services in South Dakota during a 12-month period must collect and remit tax. The justification for economic nexus is often written into the measure: e.g., “The inability to effectively collect sales or use tax from remote sellers … is seriously eroding the sales tax base of this state;” and “Remote sellers who make a substantial number of deliveries into or have large gross revenues from South Dakota benefit extensively from this state’s market, including the economy generally, as well as state infrastructure.” (Read more about South Dakota Senate Bill 106.)
Rhode Island legislators introduced economic nexus legislation last year, shortly after economic nexus took effect in South Dakota, but House Bill 7375 died in committee. Economic nexus policies exist in Alabama and Oklahoma, are taking shape in Tennessee and Wyoming, and are under consideration in several others, including Mississippi. Economic nexus seems to have more teeth than affiliate or click-through nexus.
Amazon is the nation’s largest ecommerce seller, and states obviously welcome tax revenue from Amazon sales. Yet Amazon deciding to voluntarily collect tax in South Dakota, Rhode Island or any other state doesn’t solve those states’ sales tax collection problems or make it any easier for another state to tax remote sales. Federal legislators who oppose internet sales tax are still working to prevent the Marketplace Fairness Act or similar bills from becoming law, and proponents are still seeking a solution that applies to all remote sellers.
Tax automation software can’t sort out the politics, but it can simplify sales tax compliance. Learn more.