States Crack Down on Sales Tax for Amazon Sellers

Expect to pay more sales tax this holiday season as more online merchants will be collecting sales tax.

As states become increasingly frustrated by federal rules that exempt online retailers from paying sales tax, the pressure is building for change.  Amazon, which accounted for 43% of online retail sales in 2016, is at the epicenter of the crack down.

Currently, about half of U.S. states are offering Amazon third-party sellers partial amnesty from back taxes if they agree to begin collecting sales tax.  The deal could take effect as early as December 1st. 

Currently, Amazon shoppers pay sales tax on goods purchased directly from the retailer, although it hasn't always been that way.  In many states, the change just came earlier this year, when the company expanded its tax policy to include all states where sales taxes are levied.  Previously, Amazon had followed federal law, which maintains that online retailers only have to charge sales tax in states where the company had a physical presence.

But even after this change, Amazon shoppers still do not pay sales taxes on about half of all purchases made on the website.

That's because the company's policy change did not apply to third-party sellers.  And according to Jeff Bezos, Chief Executive Officer of Amazon, Amazon's third-party marketplace is quite large.  Close to 50 percent of the units purchased on the website are sold by third-party vendors.

The deal comes on the heels of a lawsuit filed against Amazon by the state of South Carolina, alleging that the company owes $12.5 million for failing to collect taxes from third-party sellers. Merchants wary of more lawsuits might be more likely to consider this multi-state deal.