On February 13th, Amazon notified marketplace vendors selling into Rhode Island that it would share their names and addresses with the Rhode Island Department of Revenue (DOR). This follows a similar decision by the e-commerce giant to share marketplace vendor information with the Massachusetts Department of Revenue in January.
This release of marketplace vendor information follows from a new rule implemented by Rhode Island in 2017, requiring marketplace providers, like Amazon, to collect sales tax on third-party transactions they facilitated. In addition, these rules require non-collecting retailers to send notices to their customers informing the customer of their obligation to remit use tax to the state, paralleling what came into effect in Colorado last year.
Here are two things eCommerce businesses need to know about the new development in Rhode Island:
The provision of marketplace vendor information to the Rhode Island DOR likely anticipates an imminent demand for the marketplace vendors to begin collecting sales tax on their sales made to the Ocean State. This all comes amidst a growing trend among states to require remote sellers to collect sales tax on their transactions. Many of these efforts have been stymied by the prevailing standard of when a business has nexus with the state, and therefore has an obligation to collect sales tax.
The current standard for nexus, a sufficient physical presence in the state, was confirmed in the 1992 Supreme Court case, Quill v. North Dakota. Recently, the Quill ruling has become a target. Some states have sought to expand what constitutes “sufficient physical presence.” For instance, Massachusetts passed a rule last October establishing the installation of small data packets (i.e. “cookies”) on in-state computers to be a sufficient physical presence. Other states, like Colorado and Rhode Island, have established these “notice and report” requirements; sellers to these states will have to follow the onerous process of sending frequent notices to their customers, or they may just decide to become a sales tax collector.
The most direct challenge to Quill currently is the idea of “economic nexus.” Instead of relying on a business’s physical presence in a state to show nexus, this proposal would permit states to set up a threshold of sales (say $250,000 per year) as establishing nexus.
The validity of economic nexus is still unsettled. However, the U.S. Supreme Court has granted review of a direct challenge to the Quill doctrine, in the case of South Dakota v. Wayfair. This highly anticipated case could have profound impact on the e-commerce market, if the Court were to rule that South Dakota’s economic nexus rules were constitutional.
States are increasingly concerned with shoring up their tax revenue, and are looking around for what solutions work. As such, efforts to collect from remote sellers, whether by imposing notice and report requirements, requiring marketplace providers to collect for all of their users, or gathering data on marketplace vendors, will likely continue unabated.
Confused about how sales tax works for your Amazon Marketplace business? Our Sales Tax Guide for Amazon Sellers has you covered.