Amazon Agreements Boosting States’ Digital Sales Tax Drive

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Jennifer McLoughlin

Amazon.com Inc’s now-nationwide compliance with state sales and use tax regimes will embolden states in their efforts to recover revenue from all remote retailers, according to tax professionals.

This is a “harbinger of things to come,” Scott McFarlane, Avalara Inc.'s CEO said during a May 2 keynote presentation. He noted that Amazon’s change in its tax compliance policy may have further heartened states’ crusade to expand their taxing jurisdiction in the digital marketplace.

Scott Sannes, chief financial officer of Janus International Group, said during another panel at Avalara’s national tax compliance automation conference that with Amazon’s sales tax compliance, it could be difficult for other companies dealing in electronic commerce to not file.

Amazon has had a mixed relationship with state and local taxes since its founding in 1994, but as of April 1, the retail behemoth has been collecting transactional tax in each state that imposes sales or use tax collection obligations.

The company’s early success as a retailer was due in part to its refusal to collect state sales and use taxes. During that time, Amazon cloaked itself in immunity under the nexus standard established in 1992 by the U.S. Supreme Court in Quill Corp. v. North Dakota, which prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

States have intensified and diversified their strategies to combat the 25-year-old rule that many consider an antiquated brick-and-mortar restriction in an increasingly digital world. Lawsuits intended for the U.S. Supreme Court are pending in South Dakota, Alabama and Tennessee.

Eroding Rule

According to a Wakefield Research report, 69 percent of accounting and finance professionals consider sales and use tax as one of the most confusing aspects of their jobs.

Contributing to this confusion is the issue of “internet tax nexus,” with many considering that the Quill rule is evaporating against the backdrop of an increasingly digitized world.

Quill “is an uncertain science,” McFarlane told Bloomberg BNA on the sidelines of the Austin, Texas, conference, noting that states have found ways of broadening the definition of physical presence.

With the overall erosion of the need and importance of Quill, “states are stepping up,” he added. “They are becoming more aggressive. They are taking things to the Supreme Court. They are taking the fight to the businesses. And I think the businesses understand this is coming.”

To contact the reporter on this story: Jennifer McLoughlin in Austin, Texas at jmcloughlin@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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