Revenue authorities, faced with a growing tax gap, are learning that data analytics can be an effective tool for finding non-compliant businesses.
The Connecticut Department of Revenue Services (DOR) has requested Amazon to provide information on third party sellers using the e-retail giant’s fulfillment platform, paving the way for possible enforcement actions against sellers that may not be meeting their sales tax collection or remittance obligations. While it may be too late to correct any past errors, Amazon sellers should consider this as an opportunity to carefully consider their current tax compliance situation.
What Do We Know?
DOR Commissioner Kevin B. Sullivan revealed the request to Bloomberg BNA, a leading tax news source. According to the BNA report, Sullivan indicated that the data provided by Amazon could help the state collect sales tax from small online vendors using Amazon, which could help close the $75 million annual tax gap reported by the state.
How Are Amazon Sellers Affected?
While we do not know exactly what information Connecticut is requesting, we fully expect that the state is hoping to obtain data on Amazon FBA sellers in order to better track whether or not sellers located in Connecticut are meeting their legal obligations to collect and remit sales tax. It is not clear how extensive this request is and exactly what Connecticut plans to do once their analysis is complete.
Connecticut’s request comes on the heels of a similar action last year from New York. New York ultimately used this data to determine whether some Amazon sellers were collecting New York sales tax, but not remitting – an activity which amounts to fraud in most every state. It is certainly possible that Connecticut’s request has a similar, limited goal.
The request, though, could have a much larger scope. The state may be looking for third party sellers based in Connecticut who are not collecting sales tax at all. Or, potentially, the search could be after all third party sellers selling into Connecticut, with the state fishing for far flung operations that it can argue have sufficient nexus requiring the collection and remittance of sales tax. This last case could implicate a wide swath of Amazon FBA sellers.
This is all happening in a very unsettled environment for sales tax regulations. Revenue Authorities, faced with a growing tax gap are learning that data analytics can be an effective tool for finding non-compliant businesses. Likewise, more and more states are considering rules extending sales tax obligations to out of state vendors (see Colorado, Alabama, and South Dakota).
How Should I React?
Again, details on Connecticut’s request are currently very sketchy. At this point, all we can do is speculate. If the Connecticut request follows the pattern of New York, only those sellers committing what amounts to tax fraud need be immediately concerned.
If Connecticut is also searching for sellers that should be registered, collecting and remitting then more businesses may looking at an upcoming assessment. If things hold true to form, we should know more when Amazon contacts all affected sellers and lets them know exactly what will be disclosed.
The fact is, states are expending considerable energy in enforcing tax compliance and the risks associated with doing it wrong are becoming greater and greater. In this environment, using a compliant tax solution can create a lot of piece of mind.
As details come forward, we will make sure to keep you updated.