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Massachusetts to Amazon: Name your marketplace sellers

  • Oct 3, 2017

The Commonwealth of Massachusetts wants Amazon to identify its marketplace sellers “to assist the Commissioner in the determination of certain vendors’ sales and/or use tax liability.”

On Aug. 31, 2017, the Massachusetts Department of Revenue presented four arms of the ecommerce giant with a summons asking for “the names and addresses of any third-party vendor who stores, or has stored, any tangible personal property in any location in Massachusetts that is, or was, owned or leased by Amazon [or its subsidiaries and affiliates] on or after January 1, 2012.” On Sept. 25, the Superior Court ordered Amazon to comply.

Both the department and Governor Charlie Baker insist the request is “routine,” and the state is certainly entitled to audit any registered business. Yet some argue that seeking marketplace seller information is highly unusual. Former Amazon executive James Thomson told the Boston Herald, “I haven’t seen anything like this.”

Massachusetts has good reason to go after Amazon’s marketplace sellers. Overall, state sales and use tax collections are down, while ecommerce is on the rise, and global marketplace sales topped $1 trillion in 2016. Although Amazon applies tax to its own sales in Massachusetts and other states, it only collects tax on marketplace transactions if the seller asks it to (and for a fee charged to the seller). Furthermore, more than half the company’s sales are marketplace transactions. If Massachusetts could prove that even a fraction of those sellers has a physical presence in the Bay State and an obligation to collect and remit tax, its coffers will fill.

Massachusetts — not the only state seeking revenue from marketplace sales

Massachusetts isn’t the only state flexing its muscles in this area. Earlier this year, MinnesotaRhode Island, and Washington passed laws requiring marketplace sellers (e.g., Amazon) to collect and remit tax on their third-party sales. And this summer, South Carolina surprised Amazon by handing it a bill for uncollected taxes on third-party sales, plus interest and penalties.

Connecticut is also seeking data about Amazon’s third-party sales. Kevin Sullivan, Commissioner of the Connecticut Department of Revenue Services, told Bloomberg BNA in April, “It’s pretty clear that they’re required to disclose the information.” More recently, he spoke of the “mismatch between the law as it stands and the marketplace as it exists.” In addressing representatives from the Northeastern States, he said, “If our tax law, practice, and our sense of fairness do not compel us to figure out how to deal more thoughtfully and aggressively with this, we are in for more trouble than we already are” (Federation of Tax Administrators).

Thomson, formerly of Amazon, fears that if the state succeeds in its quest, “every state in the nation will say, ‘We want that list, too.’” They’ll almost certainly get it. All states participate in information sharing agreements with the understanding that if they share information, other states will respond in kind. If states do obtain a list of Amazon’s marketplace sellers, they’ll cross-reference it with their registered sellers and contact any business not already collecting tax.

Still, there’s no guarantee Massachusetts will obtain the information it seeks — it’s in Amazon’s best interest to protect their third-party sellers. It did not comply with the initial summons and “even stated that they did not intend to produce any of the documents requested.” If the company continues to adopt that stance, it could take years for the courts to resolve the case.

Meanwhile, marketplace sellers concerned about their tax liability in Massachusetts have an opportunity to participate in a multistate voluntary disclosure program specifically for online marketplace sellers. Massachusetts is one of 25 states waiving some or all franchise or income tax and/or sales or use tax for sellers that register to do business and comply with applicable tax laws by Dec. 1, 2017. The program is being overseen by the Multistate Tax Commission (MTC), which is accepting applications through Oct. 17, 2017. Learn more by visiting the Avalara Resource Center and the MTC website.

You can read the case summons here. Thanks to Bloomberg BNA for making it public.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.