Amazon recently informed its sellers it will begin calculating, collecting and remitting sales tax on all shipments to Pennsylvania on April 1. This development comes in response to a bill passed last year in the state requiring eCommerce businesses to either collect sales tax or follow notice-and-report requirements on their sales to Pennsylvania.
The state’s intent is to level the playing field with brick-and-mortar retailers, which already collect sales tax rate on purchases. Pennsylvania will join Washington – the home state of Amazon’s headquarters – as a charter member of Amazon’s new Marketplace Tax Collection service.
What does Marketplace Tax Collection do?
Before Marketplace Tax Collection, third parties using Amazon as a platform were responsible to collect sales tax themselves. Now, however, the eCommerce behemoth is assuming this responsibility in the face of new rules requiring it to collect on behalf of its sellers. The Marketplace Tax Collection service will automatically calculate, collect and remit sales tax for sales by third-party retailers into states that Amazon has added to the service.
Where does this apply?
Washington passed a law last year that included imposing sales tax requirements on Amazon marketplace sellers making $10,000 or more from consumers in the state beginning January 1, 2018. Pennsylvania was soon to follow, with an effective date of April 1, 2018. Rather than have its merchants collect and remit sales tax on their own, Amazon decided to perform the service itself, potentially avoiding backlash from disgruntled sellers.
Will Marketplace Tax Collection eventually spread to other states?
Yes. Already, a number of states have made attempts to crack down on internet retailers selling products to their residents without collecting sales tax. Massachusetts and Rhode Island took preliminary steps last year, forcing Amazon to provide information on its Marketplace vendors selling into the states. Neighboring Connecticut also made a similar attempt last year without success.
These acts were cast by the states as an effort to ensure eCommerce sellers were complying with their current sales tax obligations, though they also could give the states valuable data were they to move to expand those obligations to more businesses in the future.
In addition, South Dakota passed a law to impose sales tax requirements on out-of-state vendors that was eventually struck down by the South Dakota Supreme Court last year – a decision that is being appealed in the United States Supreme Court. And Colorado has been a thorn in Amazon’s side for years now, passing legislation as early as 2010 to create a notice-and-report obligation for remote sellers that was eventually upheld in court.
What does this mean for the future of remote sales tax?
The tax landscape is ever-changing, but the explosive growth seen in the eCommerce sector over the past decade has rung alarm bells for state tax authorities from sea to shining sea. States have begun to realize they are missing out on potentially tens of billions of dollars in additional tax revenue under the current nexus standards established in the well-known 1992 Quill decision, which ruled businesses did not have sales tax obligations in states unless they had substantial physical presence in the state.
The Quill decision has become increasingly criticized as insufficient for the new world of eCommerce retail sales, and soon will be reconsidered by the U.S. Supreme Court. As discussed briefly above, South Dakota’s own Supreme Court ruled against a state bill that would establish a requirement to collect sales tax on all businesses making over a certain amount of sales per year — an economic nexus — on the basis that Quill is still determining law.
However, South Dakota appealed that ruling to the U.S. Supreme Court, which recently agreed to hear the case. The highly anticipated case, which will be argued before the Court on April 17, with a decision expected this summer, is the most significant challenge to the physical presence standard of nexus since the Quill ruling in 1992. While it is impossible to know how the Court will rule, its decision in South Dakota v. Wayfair will have profound effects on eCommerce. This is the case, even if it decides to uphold Quill; though there have been hints in rulings from the last few years that the Court recognizes a new standard for when states can require businesses to collect sales tax may be needed for the rising virtual retail economy.
Learn more about sales tax issues that Amazon sellers face in our Sales Tax Guide for Amazon sellers.