Connecticut Asking Amazon to Disclose Third-Party Sales

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By John Herzfeld

Connecticut has asked Amazon.com Inc. to disclose information on sales facilitated through its marketplace platform, state Revenue Services Commissioner Kevin B. Sullivan told Bloomberg BNA.

The data would help the state collect sales tax from small online vendors hosted by Amazon—and aid in closing a $75 million annual gap created by remote sales, Sullivan said April 26 on the sidelines of an annual Ernst & Young LLP tax conference in New York.

Sullivan expressed confidence that Amazon would comply with the request.

“It’s pretty clear that they’re required to disclose the information,” he said, pointing to a Connecticut statute taxing sales within or into the state.

The e-retail giant has been remitting tax to the state on its own direct sales for four years, but that agreement didn’t cover the company’s hosted vendors.

Amazon didn’t immediately respond to a request for comment.

New York Plan Shelved

Meanwhile, New York and other states will continue to mull marketplace provide legislation.

New York lawmakers considered a proposal this legislative session to have large marketplace providers collect and remit sales tax for their small vendors, but the measure didn’t get legislative approval in the state budget approved earlier in April. However, officials will try again during next year’s budget cycle, Nonie Manion, acting commissioner of the state Department of Taxation and Finance, in a panel discussion at the EY conference.

A New York audit showed varying levels of compliance with a requirement for vendors to register with the state, she told Bloomberg BNA after the session. Some vendors are registered and paying sales tax, some registered and aren’t paying, and others aren’t registered and aren’t paying, she said.

“Collecting the tax from the marketplace providers would be more efficient and business-friendly,” she said.

Online marketplace tax proposals are still pending in Texas, Washington and Minnesota, among others, in what some are labeling the next frontier for online sales taxation.

‘Quill’ Relevance Waning?

Sullivan said that by the time the U.S. Supreme Court gets around to reviewing states’ taxing authority over out-of-state sellers as established in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), “it will be irrelevant” as states proceed with changes in their practices.

The often-maligned 25-year-old decision prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

Connecticut has been putting out notices to entities with in-state sales to collect and remit sales tax, including marketplace providers and their hosted vendors, Sullivan said.

The state is also seeking stronger powers to deal with sales tax delinquency, which has created a $200 million collection gap, including online sales, Sullivan said. One proposal would allow the state to deny permit renewals for noncompliance after two years, rather than the current five, he said.

Spending Constraints

Both state tax officials said budget constraints forced their agencies to seek greater efficiency.

New York is working to leverage technology and use temporary employees to comply with a state spending cap, Manion said. “It gets to the point where the cuts are hitting bone.”

Audits are moving faster, more timely and covering less ground, with fewer open issues as a result of voluntary compliance programs and more use of penalties to prod compliance, Manion said. New York is working to address a backlog in its voluntary compliance program.

The state collected 40 percent to 50 percent of corporate tax on audit, prior to changes in the state business tax in a 2015 legislative overhaul, Manion said, adding that “we hope that, with reform, we’ll get more pre-audit.”

‘Dismal’ Budget Outlook

Sullivan said Connecticut’s “dismal” budget outlook has worsened with a dramatic drop in hedge fund profits over the last two years as investors have grown more conservative.

Also, he said, uncertainty about federal tax changes has undoubtedly cut into taxable investment income. “Why realize any income now, if you don’t know what the tax will be in six months?”

Sullivan criticized a state House of Representatives proposal to add a 19 percent tax surcharge on hedge fund income, saying that “slaps across the face don’t do a lot of good” in retaining high-income taxpayers. The top 20 percent of taxpayers in income “drive a significant portion” of Connecticut’s revenue, he said.

The state’s tax agency headcount is down to 550, from 1,000 personnel 10 years ago and 1,500 before that, Sullivan said. “We were learning how to do more with less,” he said. “Now we’re looking to do less with less.”

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bna.com

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

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