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Amazon has informed marketplace sellers on its platform that it will automatically collect and remit Washington state sales tax on third-party marketplace sales beginning Jan. 1.
The move comes after the Washington Legislature in June passed E.H.B. 2163, which beginning Jan. 1, 2018 requires remote sellers, marketplace facilitators such as Amazon.com Inc., and referrers with gross receipts sourced to Washington of at least $10,000 to collect and remit sales or use tax. Instead of collecting, they can comply with notice and reporting requirements, which include informing consumers of their obligation to pay use tax. The definition of seller “includes marketplace facilitators, whether making sales in their own right or on behalf of marketplace sellers, and referrers.”
Rep. Kristine Lytton (D) told Bloomberg Tax just prior to the bill’s final passage that a key intent behind the new law is to ensure that companies like Amazon, which is headquartered in Seattle, take on the responsibility of collecting sales tax for third-party sellers. She emphasized that Amazon hadn’t expressed concern about the provision and reported that it had the software to do the job.
Under the bill, marketplace facilitators and referrers are excused from liability for not collecting the correct sales or use tax if they can prove the failure resulted from incorrect information provided by an unaffiliated seller.
An online Amazon sellers’ forum and state tax watchers have been buzzing with the news. One forum post from “quirkybooksabq” said that “if Amazon files individual tax returns on behalf of each seller, providing the seller’s name and address, that would enable Washington to send demand letters seeking payment of sales tax on each seller’s non-Amazon sales.”
Scott Peterson, vice president of U.S. Tax Policy and Government Relations for Avalara Inc., told Bloomberg Tax Nov. 20 that the post reflects a valid concern “if no one is collecting tax on those sales. But once Amazon starts to collects tax on some of those sales, then the state’s incentive to send demand letters diminishes. Just because you sell into a state on Amazon doesn’t mean you sell into the state otherwise.”
Peterson, who is the former executive director of the Streamlined Sales Tax Governing Board Inc., said he believes other states will follow Washington’s lead, with Minnesota and Pennsylvania having already passed similar legislation.
Amazon didn’t immediately respond to a Nov. 20 request for comment.
With more states targeting Amazon-type marketplace providers for tax collection on third-party sales, some practitioners have said that the laws present potential complications.
During the New England State and Local Tax Forum Nov. 15, Faranak Naghavi, partner in Ernst & Young LLP’s Americas Indirect Tax and TPA practices, said there’s potential for confusion among vendors, marketplace providers, and third-party sellers with Minnesota’s law.
Minnesota, home to brick-and-mortar competitors Target Corp. and Best Buy Co., in June enacted the country’s first law requiring companies like Amazon and eBay Inc. to collect sales taxes on goods sold by third-party marketplace sellers. The marketplace provider law will be effective July 1, 2019, or sooner if the U.S. Supreme Court modifies its 1992 ruling in Quill Corp. v. North Dakota, which prohibits states from imposing sales and use tax collection obligations on vendors lacking an in-state physical presence.
“Each party has to elect whether to collect the tax,” she said. “One could potentially elect to collect the tax, and another elect to notify its customers. Then the customer might pay the sales tax, and then be notified by another party that they owe the tax.”
There could be confusion in an audit as well, she said, with companies forced to reconcile their accounting with each other over which one collected the tax.
“The regulation is not clear on this point, making it a difficult law to comply with,” she said.
With assistance from Aaron Nicodemus in Boston
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