Not all states want marketplace facilitators to collect tax. Some just want information.
- Dec 7, 2018 | Gail Cole
To date, 13 states have enacted marketplace sales tax laws. Most require marketplace facilitators like Amazon, eBay, and Wayfair to collect and remit sales tax on behalf of their non-collecting third-party sellers. Yet, not all states are interested in having marketplace facilitators play tax collector. Some want the facilitator to identify marketplace sellers (FBA sellers) so they can contact those sellers directly.
States seeking seller information from Amazon
Amazon has received — and complied with — a “valid and binding legal demand” to share seller information with at least six states: Massachusetts, Rhode Island, North Carolina, New York, California, and Wisconsin. The information the company was asked to provide to each state varies, as described below (with date the information was to be shared):
- Massachusetts (by January 26, 2018):
- Seller contact information (name, address, phone number, and federal tax ID number)
- Estimated value of seller’s inventory in Massachusetts fulfillment centers, calculated based on seller’s selling prices in late 2016 and in 2017
- Rhode Island (by February 15, 2018):
- Seller contact information (name and address)
- North Carolina (by April 30, 2018)
- Contact information (name, address, and federal tax ID number)
- Amount of seller’s Amazon sales to North Carolina customers during the 2017 calendar year
- North Carolina sales tax, use tax, or local tax collected on those transactions and turned over to the seller in accordance with seller’s tax calculation settings in Amazon
- New York (by June 1, 2018):
- Contact information (name, address, and federal tax ID number)
- Total amount of seller’s Amazon sales during the 2014 calendar year
- Total amount of seller’s Amazon sales to New York customers in 2014
- California (by November 6, 2018)
- Contact information (name, address, and email) for 2017 sellers
- U.S. Taxpayer Identification Number for 2017 sellers
- Wisconsin (by December 17, 2018)
- Contact information (name, address, and U.S. federal tax ID number)
- Amount of seller’s Amazon sales to Wisconsin customers during the 2017 calendar year
- Wisconsin sales tax, use tax, or local tax collected (if any) on those transactions and turned over to seller in accordance with seller’s tax calculation settings in Amazon
At least two other states have requested information from Amazon: Connecticut and South Carolina.
Connecticut asked Amazon to disclose third-party seller information in the spring of 2017. Then Revenue Services Commissioner Kevin Sullivan told Bloomberg BNA he was confident “Amazon would comply with the request.” Whether it has is unknown.
The situation in the Palmetto State is slightly different. South Carolina considers Amazon to be the seller for all its sales, and it’s suing the company for unpaid back taxes on its third-party sales. On June 13, 2018, an administrative law judge ordered Amazon to comply with a request for information from the South Carolina Department of Revenue (SCDOR).
For now, the state’s waiting to see if Amazon will be found liable; it isn’t looking to contact sellers to obtain tax revenue from them. Nonetheless, it’s invited what it calls Amazon’s “third-party suppliers” to register with the state and collect and remit sales and use tax themselves. According to the SCDOR, this advice is in response to requests from Amazon sellers (or suppliers) wishing to know if they’ll be held liable for tax if Amazon wins the lawsuit.
What the request for information means for Amazon sellers in California and other states
As in other states that have requested information, the California Department of Tax and Fee Administration (CDTFA) is looking for businesses that have sales in California but haven’t registered to collect and remit California sales and use tax.
In fact, California’s been looking for these businesses for some time. According to Mike Fleming, founder of Sales Tax and More, the CDTFA has previously used data mining software to uncover the identity of Amazon sellers. It then sent letters to those businesses asking them to fill out a nexus questionnaire regarding their business activity in the state.
Because California is a giant among states, having the fifth largest economy in the world and a population of 39 million, its search for Amazon sellers is a big deal. Fleming notes that companies often have a high volume of sales in California, and “larger sales equal greater liability.” Non-collecting businesses that are found to have nexus with California could be held liable for up to eight years of back taxes, plus penalties and interest charges. And they could have nexus through the products they store in Amazon facilities in the state.
Storing products for sale in California establishes nexus
According to the CDTFA, a business that maintains stocks of merchandise in California is engaged in business in the state and required to register for California sales or use tax. Amazon opened its first warehouses in California in 2012. Thus, businesses that have participated in the Fulfillment by Amazon (FBA) program at any point since that time could be found liable for uncollected taxes on their California sales.
A similar scenario could play out in more than half the states in the country. In addition to California, Amazon maintains warehouses or fulfillment centers in approximately 26 states. Any of these could conceivably argue that the presence of inventory in the state triggers nexus and an obligation to collect sales tax. Like California, these states could potentially hold sellers liable for years’ worth of back taxes.
“The last big warning”
Mike Fleming says state requests for information from Amazon “could be the last big warning that seller’s get” and that “not all states will require Amazon to collect the tax for sellers, or at least not in the short run.” Furthermore, even those that do could go after sellers for past liability.
Close to 30 states have implemented economic nexus policies that enable them to tax remote sellers based on their economic activity in the state, which they won the right to do in South Dakota v. Wayfair, Inc. California and many other states that haven’t yet adopted economic nexus are looking to do so in 2019.
Most economic nexus laws are prospective, meaning the state won’t use them to go after sellers for unpaid tax liability incurred prior to the effective date of the law. But that doesn’t necessarily clear all sellers from all past liability.
For example, North Carolina’s economic nexus law (effective November 1, 2018) will be applied on a prospective basis for unregistered remote sellers with no physical presence in the state. But according to the Department of Revenue, “This prospective treatment does not apply if a person has a physical presence or other legal obligation to collect and remit North Carolina sales and use tax.” And under North Carolina law, maintaining tangible personal property or digital property for sale in the state can trigger nexus. It’s likely no coincidence that North Carolina wanted (and obtained) third-party seller information from Amazon.
What’s a seller to do?
Businesses that sell into multiple states and don’t currently collect and remit sales tax in all locations should examine state requirements and their business activity to determine if they have, or are at risk of establishing, nexus. Avalara’s check-your-nexus tool is a good place to start.
Additionally, Amazon has advised sellers to “consult with a tax advisor” regarding business activities in states that have requested seller information. That’s sound advice.
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