Small Toilet Paper

Amazon recently gave new meaning to having convenience at your fingertips. The company introduced a new set of gadgets to make shopping for commonly used household goods even easier. ‘Dash Buttons’ allow consumers to reorder various household products with the push of a button.

These branded devices can be stuck, via adhesive on the back, in the medicine cabinet, on the washing machine, or even next to the toilet paper roll in the bathroom. Running low or running out of products used on a daily basis can now be a thing of the past. All you have to do is push the wifi-connected button to reorder deodorant, laundry detergent, toilet paper, diapers or whatever product you need for which Amazon makes a Dash Button. These devices represent a new advance in the ‘internet of things’ and the sales tax implications are a little murky.

Welcome to the Prime Time

In order to use the Amazon Dash Buttons, a buyer must be a member of Amazon Prime. Amazon Prime is a paid membership which, in addition to providing the option to use Dash Buttons, allows members to access streaming video and music content, to have early access to deals, and to have free two-day shipping on certain sales. The bundled benefits of Amazon Prime membership create some interesting sales tax consequences on their own. Amazon only collects sales tax on Prime membership fees paid by consumers in 14 states such as Arizona, California and Texas. (According to Amazon’s website, it now collects sales tax generally in 28 of the 46 states plus Washington, D.C. that impose sales and use taxes.)

The Florida Department of Revenue issued a Technical Assistance Advisement regarding “Communications Services Tax” collected on bundled memberships involving free shipping and streaming video. The Department stated that the portion of membership fees attributable to instant video services are taxable, but “if that portion is not separately allocable, then the entire membership fee is subject to the communications services tax.”

In addition to requiring Prime membership to use the Dash Buttons, consumers must purchase the Dash Buttons from Amazon. Amazon Prime members who decide to purchase Dash Buttons are given a credit equal to the sales price of the button. The credit is then applied to the first order using the button. It seems that Amazon did not initially charge for the Dash Buttons, at least not in Florida. The Florida Department of Revenue issued a Technical Assistance Advisement stating that a retailer was liable for use tax on the Dash Buttons that it imported into Florida. (It’s an interesting question as to whether the Dash Buttons could conceivably create a physical presence in a state where Amazon might otherwise not have it.) Perhaps as a result of Florida’s determination regarding use tax, Amazon now “sells” these buttons, but with the aforementioned credit for the purchase price from the first order. As Amazon has structured the transfer of the Dash Buttons as a sale, it has effectively transferred the use tax liability on the buttons to the consumer.

 Regardless of how or whether Amazon’s new devices ultimately are taxed, I like the  idea that, thanks to the Dash Button, I may never again run out of toilet paper or paper towels or laundry detergent or cat food or….anything. Welcome to the future.               

Continue the discussion on LinkedIn: Should states impose sales and use taxes on Dash Buttons or Prime Memberships?

For more information about state tax issues, sign up for a  free trial on Bloomberg BNA’s Premier State Tax Library.

By Emilie Burnette