South Carolina to Amazon: Collect Sales Tax Now
States are continuing to come up with ways to collect sales tax from online sellers (specifically Amazon's third-party sellers). South Carolina recently filed a motion in court to force Amazon to collect these taxes and fees on behalf of its third-party sellers.
As it is now, Amazon collects sales tax on items purchased directly from them, but the retail giant does not collect it on sales made on the site by a third party. South Carolina is claiming it could lose more than $500 million in sales tax if Amazon doesn't begin collecting them now, and is asking the court to require the retailer to charge sales tax and put it into a trust or escrow-type account until the case is settled.
South Carolina’s Argument for Amazon Collecting Sales Tax
The state is most concerned with receiving the sales tax they’re owed. Someone owes it to them, and they’ve chosen to pursue Amazon for it (rather than numerous third-party sellers or the ultimate consumers).Read more
More Amnesty on the Way!
Across the U.S., amnesty seems to be a popular topic these days. The Multistate Tax Commission’s (MTC) special amnesty program for marketplace retailers recently ended. And a few other states have recently announced their own amnesty programs so that they can benefit from potential increased compliance as well. Connecticut (CT), Ohio (OH) and Rhode Island (RI) are the latest states to roll out amnesty programs of their own. And we expect others to follow. The states administer amnesty programs because they want to induce companies to become compliant by waiving, or limiting penalties and interest for prior unpaid taxes.
Recent MTC amnesty program
Many states just took part in a special amnesty program. The MTC had negotiated this special program for online sellers using marketplace fulfillment services (such as Fulfillment by Amazon) that created nexus and thereby had sales tax and income tax obligations. Twenty five states participated, including CT and RI. To find out more about this amnesty program, click here.
This special amnesty program waived taxes in addition to interest and penalties. We’ve cautioned our clients not to expect amnesties to be that generous in the future. Most state amnesties allow taxpayers to waive penalties and some interest, but rarely the tax itself.
FOCUS ON MICHIGAN
This month takes us to the Wolverine State of Michigan. The origins of this name are obscure, but may be derived from a busy trade in Wolverine furs during the 18th Century.
Its largest city, Detroit, is famed as the seat of the U.S. auto industry, which inspired Diego Riviera’s murals at the Detroit institute of Arts. Also in Detroit is Hitsville U.S.A., the original headquarters of the Motown Record Company. Michigan is home to many great musicians including The Supremes, The Temptations, Stevie Wonder, Smokey Robinson, Bob Seger, Kid Rock and Alice Cooper.
12 Important Details: Sales Tax & WA's New Marketplace Facilitators
We recently shared an overview of Washington’s New Marketplace Fairness solution. While we’re skeptical it will help rather than hinder, it’s important you know additional details about marketplace facilitators and sellers.
Marketplace Facilitator Overview
- Starting in January 2018, marketplace facilitators will need to collect sales tax on behalf of marketplace sellers that have not established a physical presence, or nexus, within the state.
- Facilitators are responsible for collection of sales tax if they themselves have nexus in Washington State or $10,000 or more in retail sales within the state. This can include their own products as well as sales they make on behalf of a remote seller.
- What exactly do these facilitators need to do? As the Department of Revenue explains:
- Collect and pay sales tax on sales to Washington consumers
- Follow the use tax notice and reporting requirements [as explained].
What is WA's Marketplace Fairness? New Online Sales Tax Solution
For years, Washington State has been one of the states passing online sales tax legislation. From statutes expanding nexus (making more businesses responsible for the state's taxes and fees) to its five-point internet sales tax solution, the Evergreen State is quick to come up with more solutions to make the marketplace "fair."
The latest attempt to level the playing field makes some fairly aggressive changes in the state’s sales tax collection policy for marketplace facilitators.
While the state says it will make the marketplace more fair to brick and mortar retailers, we’d actually argue it’s a compliance burden and onerous on the seller. Why? The "solution" designates three additional definitions businesses will need to examine in order to determine how they apply if the definitions do apply, the business needs to pay close attention to another piece of legislation that may change again in the future.
An Overview: Marketplace Fairness
Here’s an overview of the new marketplace fairness solution.
Beginning in the New Year, "Certain marketplace facilitators, remote sellers, and referrers have new obligations related to the collection of sales or use taxes or the providing of notifications."Read more
Update on the CA Competes Tax Credit
As the mainstream media wonders where Amazon will locate its HQ2, many states are in the news touting their credits and incentives benefits to draw in company expansions. We thought it would be a good time to revisit the California Competes Tax Credit. As we’ve reported before, the credit has been available since January 2014 and isn’t scheduled to sunset until 2025. Every year, the state earmarks funds for the program of approximately $200 million, and companies compete for the funds during three application periods per year.
The CA Competes Tax Credit is an income tax credit available to companies who want to expand their business in CA. (They can be in state businesses expanding or businesses new to the state.) Companies that apply for this credit must submit applications to the state detailing increased investment in CA. Tax credit agreements are negotiated by GO-Biz and approved by a statutorily created “California Competes Tax Credit Committee.” The GO-Biz is a board consisting of representatives from the Governor’s office of Business and Economic Development. Not all companies requesting money receive it. There is a subjective process for allocating the funds annually.
New in the Online Sales Tax Realm: States & 3rd Party Sellers
If you've purchased from Amazon lately, you may have noticed they've started charging sales tax. However, many third-party merchants that sell through the website haven't been collecting it.
In fact, research shows that despite half of online sales happening through marketplaces (a number which is expected to grow to two-thirds within five years), these sellers don't collect sales tax - even if the retailer they work through does (such as Amazon).
States’ Efforts: Collecting Sales Tax From Third Party Sellers
Come December 1, it's expected the states involved in the amnesty program we've recently discussed will begin collecting sales tax from online merchants - including those that sell through a website like Amazon.
As the Seattle Times points out, this presents an important question: "Who will be responsible for collecting and remitting the taxes when someone buys something from a third-party seller on Amazon.com? Is that Amazon’s job or the merchant’s job, or some combination?"Read more
FOCUS ON KENTUCKY
This month we travel to the Bluegrass State of Kentucky. The nickname is based on the bluegrass found in many of its pastures due to its fertile soil. The state’s largest city, Louisville, is home to the Kentucky Derby, the renowned horse race held at Churchill Downs on the first Saturday in May.
The Red River Gorge is a canyon system on the Red River in east-central Kentucky. Geologically, it is part of the Pottsville Escarpment, a resistant sandstone belt of cliffs and steep sided, narrow crested valleys. The prevalence of sandstone allowed the Red River to cut a magnificent gorge through the mountains. It is a rock climber’s paradise and is some of the best natural area around!
Kentucky is a land with diverse environments and abundant resources, including the world’s longest cave system, Mammoth Cave National Park, the longest of navigable waterways and streams in the contiguous United States, and the two largest man-made lakes east of the Mississippi River.
Last Chance: Take Advantage of the Amnesty Program Now!
Are you still considering whether to take advantage of the current amnesty program? Designed as a way for online sellers to become compliant in states they may have created nexus (either intentionally or inadvertently), the voluntary program provides an opportunity for these businesses to come forward if they haven't been collecting income, franchise, use or sales tax.
The program originally was going to end on October 17. However, on October 11, the MTC voted to extend the application deadline to November 1. So contact us soon for help registering for this program!
How the Amnesty Program Works
Online marketplace and ecommerce sellers (particularly those using fulfillment services such as “Fulfillment by Amazon” or FBA) with outstanding sales and income tax liabilities use the Multistate Tax Commission’s Voluntary Disclosure Agreement to become tax compliant, and the participating states waive the fines and penalties for which sellers would generally be responsible. In several cases they are also waiving the tax itself!Read more
New: Online Sales Tax Bill Defeated in SD Supreme Court
If you’ve been following the online sales tax debate on our blog, you know South Dakota recently passed, “Senate Bill 106, allowing the state to collect taxes from sales made from online retailers – even if they don’t have nexus within South Dakota itself.”
The 2016 law mandated a sales tax collection responsibility from sellers grossing over $100,000 in sales to South Dakota customers, or transactions numbering more than 200 in a year – even if the seller has no physical presence or other connection with the state. Then NetChoice and the American Catalog Mailers Association sued the state, claiming the law violates Quill Corp. v. North Dakota, a ruling which established businesses need a physical presence in the state to be responsible for sales tax and fees.
Online Sales Tax Bill Ruled Unconstitutional
Unsurprisingly, South Dakota’s Supreme Court ruled Senate Bill 106 to be unconstitutional. Supreme Court Justice Glenn Severson stated, “We see no distinction between the collection obligations invalidated in Quill and those imposed by Senate Bill 106...and hold that the circuit court correctly applied the law when it granted sellers’ motion for summary judgment.”Read more
