TaxConnex™ Sales Tax Blog

Never miss an update! Subscribe to our blog.

E-Commerce Sales Tax & Third Party Merchants

Posted by Brian Greer on Wed, Jan 03, 2018 @ 04:30 PM

According to the United States Department of Commerce's Census Bureau news, e-commerce transactions made up 9.1% of total retail sales in the third quarter of 2017, accounting for  more than $115 billion in sales.

Ecommerce Store-1

Of course, many of those sales occurred on retail juggernaut Amazon, which reported net sales of more than $43.7 billion in the third quarter of 2017.  In recent years, Amazon and state governments conflicted over Amazon's refusal to charge state sales tax, and eventually Amazon began charging sales tax country-wide.  But Amazon only charged that tax when items came from Amazon's own inventory; independent third parties selling on Amazon's platform were on their own to collect and remit sales tax, and most do not.

This has led to increasing conflict with states and other merchants.  For example, according to CBS News, in November of 2017, South Carolina's Department of Revenue asked an administrative law judge to force Amazon to start collecting sales tax on all items, including those sold by independent merchants, claiming that a failure to do so "poses an immediate threat to the state's fiscal health and economic well-being."  In fact, the state estimates it will lose $500 million in sales tax revenue by 2022 if Amazon does not start charging sales tax, and is currently owed $57 million in sales tax from 2016 alone.

While South Carolina has opted to pursue an administrative suit to force tax payments, other states have passed legislation requiring marketplace operators, like Amazon, to either collect sales tax from third party merchants that use their sites or comply with state use tax notice and reporting requirements.  Washington state has passed such a law, which went into effect January 1, 2018.

Minnesota also passed a similar law, which goes into effect in 2019, requiring marketplace providers like Amazon to collect sales tax on behalf of third party sellers, unless the seller is already registered to collect sales tax in Minnesota. 

The actions to enforce sales tax collection and payment are not limited to these states.  According to the New York Times, Massachusetts recently ordered Amazon to provide information about merchants storing goods in the state.  Sellers in California report receiving letters from tax investigators as well.  It appears that 2018 is setting up to be a crossroads for many e-commerce businesses.

New call-to-action

Topics: Amazon, ecommerce, sales tax news