There is a great deal happening with online sales tax in the United States right now. We asked Pat Riley, Vice President of Business Development at our partner, TaxCloud, to cover a few of the big issues and how they might impact Amazon sellers
Supreme Court Case on Online Sales Tax
A ruling is pending in a US Supreme Court case, South Dakota vs. Wayfair
, which is likely to come by June 25th
. The case came about from a South Dakota law that imposed “economic nexus” provisions compelling out of state sellers to collect South Dakota sales tax based on the annual sales volume a seller executes in the state or
the number of annual transactions the seller completes in the state. The law was a direct challenge to two prior US Supreme Court decisions, 1967 Bellas Hess and 1992 Quill
. which established a “nexus” or physical presence standard (generally interpreted to be employees, office space or similar) to compel out of state sellers to collect a states sales tax.
The South Dakota Supreme Court struck down the law citing the two precedent setting cases, ruling that the law of the land is based on those cases. South Dakota quickly appealed to the US Supreme Court which agreed to accept the case and hear oral arguments in April. While there are several decisions the court can make, there are three likely outcomes…
The Three Most Likely Outcomes
- Overturn the South Dakota Supreme Court and Therefore Bellas Hess & Quill – Perhaps the most disruptive decision, this decision would allow states to compel any seller into their state to collect its sales tax. The disruption would be the timing which could see some states saying start collect immediately, while others might provide warningto allow online sellers to prepare. Sellers doing business in many states would have to understand a myriad of those state decisions and quickly figure out how to manage the new mandates.
- Affirm South Dakota Law and Bellas Hess & Quill – A nuanced decision that would minimize disruptions. Essentially, the court would say that we will allow the South Dakota economic nexus law to stand, but only states that have “simplified” sales tax collection like South Dakota and 23 other states have through the Streamlined Sales and Use Tax Agreement (as an example) can compel out of state sellers to collect their tax. States that have not simplified, which make up 21 states including New York and California, would not be able to compel sellers until they simplify.
- Affirm Bellas Hess & Quill – Basically the status quo decision which would keep the current sales tax rules in place and push the issue back to Congress for action (or more likely inaction).
What Can You Do?
As an online seller, the most proactive step you can take right now is to speak to your tax accountant or attorney to understand how the decisions might impact you and what steps you should be taking based on the outcome.
Fulfillment By Amazon (FBA) & Taxes
Since its inception, FBA has created sales tax consequences for Amazon marketplace sellers who have elected to use the service. Because Amazon Marketplace sellers are using FBA to manage warehousing, fulfillment and logistics – products are now in Amazon facilities at the time of sale has created nexus (physical presence) in those states where the sellers products are warehoused. Originally, FBA sellers didn’t always think about this impact, but the states quickly caught on and have been aggressive in trying to collect that tax revenue.
If you use FBA, fully understand what states your inventory is warehoused in and put processes in place to be collecting sales tax in those states. As we always recommend, if you have any questions, reach to your tax accountant or lawyer for professional advice.
Marketplace Facilitator Laws
States have become increasingly aggressive by passing what have become known as Marketplace Facilitator laws. These laws are intended to put the sales tax collection & remittance or reporting burden on marketplaces such as Amazon, eBay, Etsy, Walmart and others. The theory behind them is it’s easier for a state to come to the marketplace for issues, & audits rather than millions of online sellers. Washington state’s law went into effect on January 1st, Pennsylvania’s took effect on March 31st with another 8 states coming online in the coming months.
On the positive side, these laws (where the marketplace has agreed to file, collect & remit, like Amazon has) takes the burden off the marketplace seller – a good thing! The challenge is that not all states have the laws in place so sellers need to be aware of what states have these laws, the timing of them and and state to state variations. The marketplaces have been communicating well on these law changes and other states now seeing the momentum and effectiveness of these laws will likely follow suit in passing similar laws.
We recommend finding out how the marketplaces you sell on are implementing these laws within their platform environments.
TaxCloud is a Software as a Service (SaaS) platform offering sales tax management & compliance services to online sellers. Our 20,000+ clients receive sales tax calculation for every address in the US, filing & remittance services, audit response and indemnification. We have both a FREE service and a fee based service available to our merchants. Learn more at www.taxcloud.com.