Amazon to share third-party seller information with New York tax department
- May 31, 2018 | Gail Cole
Amazon has agreed to share information about certain Amazon marketplace sellers with the New York state tax authorities.
Although Amazon collects and remits tax on its own sales in New York, it doesn’t do so on third-party sales unless a seller signs up (and pays for) Amazon’s tax collection services. Under New York law, Amazon isn’t required to.
Governor Andrew Cuomo would like to change that. His 2017–2018 budget proposal included a provision to require large marketplace facilitators like Amazon to collect and remit tax on their marketplace sales. After it was cut, he included a similar provision in his 2018–19 budget proposal. It, too, was cut from the final version.
The New York Department of Taxation and Finance isn’t trying to tax Amazon’s marketplace sales, but it does want to know more about the company’s marketplace sellers. On May 15, 2018, Amazon Services informed third-party sellers that it intended to comply with a “valid and binding legal demand” from New York tax authorities to share certain information about their business.
By June 1, 2018, Amazon will provide the department with the following information “for all Amazon.com sellers who have not elected to use our tax calculation services for sales to customers in New York”:
- Contact information (name, address, federal tax ID number)
- Total amount of Amazon.com sales during the 2014 calendar year
- Total amount of Amazon sales made to New York customers during the 2014 calendar year
Why 2014? New York hasn’t said.
The company will not share information about sellers that use Amazon’s tax calculation services for sales to customers in New York. These sellers are, presumably, already known to the state tax department.
What will New York do with this information?
It’s unclear exactly what New York will do this information, though it isn’t the only state to seek it: Amazon has complied with similar requests from tax authorities in Massachusetts and Rhode Island.
New York could use the information Amazon provides to uncover unregistered vendors that have nexus, a connection with the state significant enough to trigger a tax collection obligation.
According to a 1992 ruling by the Supreme Court of the United States (Quill Corp. v. North Dakota), for a state to impose a tax collection obligation on a vendor that connection must be physical in nature: The business must have a physical presence in the state. But “physical” can be broadly defined. In 2013, the New York Court of Appeals determined that in-state affiliates could trigger nexus for certain out-of-state vendors, including Amazon and Overstock.
New York could also do nothing other than sit on the information it until it becomes useful.
The wait may not be long. South Dakota has asked the Supreme Court to abrogate its decision in Quill so the state can impose a tax collection obligation on remote sellers with significant economic activity in the state (economic nexus). The court heard oral arguments on April 17, 2018, and is expected to issue a decision by the end of June.
If the court finds in favor of South Dakota, it could become easier for other states to impose a tax collection obligation on certain remote vendors. Whether this would be true in New York — and whether the information the tax department obtains from Amazon would serve any purpose — is unknown.
More states interested in taxing marketplace sales
No matter what New York does with the information it obtains, its interest in the Amazon marketplace is in step with a trend developing throughout the United States.
Minnesota, Oklahoma, Pennsylvania, Rhode Island, and Washington have enacted marketplace fairness tax laws requiring large marketplace facilitators like Amazon to collect and remit tax on their marketplace sales. Several other states, including Connecticut, Hawaii, and New York have considered similar legislation.
South Carolina hasn’t passed legislation to that effect, but the tax department is trying to hold Amazon liable for millions in uncollected taxes on its marketplace sales. As Amazon has refused to pay, the state suggests third-party sellers register and collect and remit sales tax instead.
And as of June 1, 2017, Virginia holds that storing inventory in Virginia triggers nexus for out-of-state businesses.
What happens next?
In its notice to sellers (hat tip to Bloomberg BNA), Amazon recognized that “each seller’s business and tax needs are unique” and advised sellers “to consult with a tax advisor.” That’s sound advice for any retailer that sells in jurisdictions where it doesn’t collect tax.
It’s also important to keep informed of changing sales tax laws and policies. You can learn more about state efforts to broaden nexus and challenge Quill at Avalara Sales Tax 360.