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Amazon Passing Sales Tax Problems to Sellers

Amazon State Sales Tax

State Officials want Amazon to pay Sales Taxes to South Carolina

Amazon is now in trouble with state officials in South Carolina, where Amazon is being asked to adhere to the state’s tax laws.

Actually, “asked” may be putting it lightly. South Carolina is demanding that Amazon pay $500 million over the course of the next five years in tax revenue. South Carolina’s government says that Amazon hasn’t been paying the state the proper amount in taxes in recent years. A lawsuit was filed.

CNBC reported that Amazon is at risk of over $500 million

The motion said that Amazon owes South Carolina 57 million in uncollected taxes from 2016, and the state extended its analysis over five years, which is how long it said litigation on the case could last. The state is asking that Amazon collect taxes now and put the money in a trust until the case is resolved.

“Ordering Amazon to collect the tax due and remit it to a trust simply ensures that the state will receive what it is owed at the end of the litigation,” the motion said.

The case initially filed in June, alleges Amazon has failed to collect taxes on sales made by third-party merchants (Amazon Sellers), who account for about half of all units sold on the company’s marketplace. Amazon currently only collects taxes on products that it sells.

South Carolina Sales Tax

Amazon expects Sellers to pay State Sales Taxes

At the moment, the sales tax only applies to Amazon Sellers who keep products in Amazon-owned warehouses in the affected states. South Carolina’s concern is that Amazon isn’t paying taxes on third-party items that are stored in South Carolina’s Amazon warehouses.

Amazon seems to have expected its Amazon Sellers to pay sales taxes even though Amazon handles all aspects of the finances of FBA sales.

The State of South Carolina seeking Sales Taxes from Amazon

The State of South Carolina seeks a court order directing Amazon to provide sales taxes since the money hasn’t been paid on a regular basis or, it seems, in full. Essentially, South Carolina doesn’t care where the taxes come from. Since Amazon hasn’t been paying the appropriate amounts in the first place, the State of South Carolina is going where the money is: Amazon.com.

Many Amazon Sellers are understandably frustrated that Amazon is expecting Amazon Sellers to take care of Amazon’s financial squabbles.  As reported by CBS news.com:

“Regardless of what Amazon wants to say to protect their bottom line, they are the retailer, they own the customer,” said one Amazon seller who isn’t taking part in the amnesty program and wished to remain anonymous. “Amazon handles the money transaction, the customer service and ships the inventory. Amazon is happy to pin this on the little guy. They would love nothing more.”

This is another instance of Amazon viewing Amazon Sellers as replaceable assets. If there are Amazon Sellers who are upset with having to pay for Amazon’s tax problems, there are plenty who can step in to take their place.

At the moment, the case is pending. The verdict could result in a wave that impacts Amazon Sellers in other states as well. South Carolina isn’t the only state that is having significant sales tax issues with Amazon.

Amazon Court Appeal

How are States dealing with Amazon and eCommerce?

Earlier this year, Minnesota became the first state to require that all companies that operate marketplaces, including Amazon’s rival eBay (EBAY) and crafts marketplace Etsy (ETSY) collect sales tax starting in 2019. Washington state enacted a similar ordinance effective January 2018. Officials from eBay and Etsy didn’t respond to requests to comment for this story.

South Dakota is actually the farthest along in a similar case, which has now reached the Supreme Court. The Supreme Court hasn’t decided yet whether or not it will take the case.

However, it’s still a relatively small number of states that have become aggressive. Other state governments will likely become more vocal if they know they can compel Amazon to pay more in taxes as a result of the South Carolina and South Dakota cases.  Amazon will have to decide where to go from there.  Is Amazon going to pass this onto Amazon Sellers?

Sellers should keep their eyes on these cases and the others around the country as they wind down. If South Carolina gets Amazon on the hook for all of that money in taxes, it could impact Amazon Sellers in a multitude of ways.

First of all, it could discourage Amazon Sellers from using Amazon-owned warehouses to store their items if the states are going to charge more money for it. Amazon Sellers would be forced to tax their products even more, which would cause customers to go to other Amazon Sellers for their items. Local Amazon Sellers will become more popular since Amazon Sellers will have to decide if it’s better to hold warehouses in other states or to pay for the additional shipping costs. The local Amazon Sellers will be in a better position to deliver products at cheaper costs especially Amazon Sellers that are located in highly populated areas.

Secondly, it could create a bigger rift in the relations between Amazon and its Amazon Sellers. If Amazon Sellers continue to think that Amazon is trying to take advantage of them, they might be inclined to start selling on other websites. If the quote above from the anonymous seller resonates with more people and if more people feel like Amazon is trying to use them to solve Amazon’s own financial issues, it could cause Amazon Sellers to jump ship. But, at least here in the United States, Amazon Sellers have no place to go for the same volume of sales and number of customers.  Amazon Sellers will likely simply take another hit from Amazon.

Amazon United States Sales Taxes

Amazon Sellers’ Lawyer Conclusion

Amazon continues to increase its power over Amazon Sellers.  Amazon recently became more involved in the sales of its third-party sellers including Amazon’s recent move to provide paid-for discounts on items that could be hot in the holiday shopping market.

Obviously, the verdict in the South Carolina case will have implications across the company and among Amazon Sellers. Amazon Sellers will just have to hope that the verdict and Amazon’s following decision isn’t too costly for Amazon Sellers’ businesses.

This article was researched and written by Anders Jorstad.  Anders is a content creator Amazon Sellers Lawyer. Anders will be earning his degree in journalism from Hofstra in the fall and has five years of professional journalism experience. He has written for numerous online and print publications including SB Nation and The Hofstra Chronicle. 

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