South Carolina Chasing Amazon Marketplace Taxes During Dispute

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By Jennifer McLoughlin

The South Carolina Department of Revenue is asking a court to mandate Amazon collect tax on third-party marketplace sales while the state and retail behemoth battle over whether the company is obligated to collect taxes on those transactions.

The DOR filed Nov. 8 a motion requesting the state Administrative Law Court (ALC) order Amazon Services LLC to start collecting taxes on third-party sales facilitated through its marketplace platform and deposit the monies into a trust pending the company’s legal challenge of a tax assessment. The Amazon.com Inc. subsidiary received a June assessment for almost $12.5 million in uncollected taxes, penalties, and interest Amazon Servs., LLC v. S.C. Dep’t of Revenue , S.C. Admin. Law. Ct., No. 17-ALJ-17-0238-CC, motion filed 11/8/17 .

Amazon’s challenge, filed July 21, claims the DOR’s assessment is unconstitutional and violates state and federal law. Amazon began collecting sales tax for South Carolina last year. However, according to the state DOR, the company owes $9.6 million in uncollected taxes from third-party sales during the first quarter of 2016 and almost $3 million in penalties and interest that continue to accrue.

“By avoiding these taxes, Amazon enjoys a competitive economic advantage over South Carolina brick-and-mortar retailers,” according to the DOR’s motion. “More importantly, Amazon’s failure to collect and remit sales and use tax to South Carolina during the pendency of this action poses an immediate threat to the State’s financial health and economic stability.”

$500 Million Loss

The DOR argued that Amazon continues to shirk collecting tax on third-party marketplace sales to South Carolina customers, and if those taxes continue to go unpaid, the state could lose over $500 million in unpaid sales and use taxes by the litigation’s end—which the DOR suggested could take five years if the case is appealed to the U.S. Supreme Court.

“There is no guarantee that Amazon will be able to pay the State its current or future tax liability—especially in light of the significant amount of the potential tax liability,” the DOR argued, adding that “given the ever-changing economic climate and the competitive nature of the retail industry, the Department (and the State) should not be forced to assume this kind of financial risk.” And if a DOR victory encourages other states to file similar suits, there is no guarantee that the tax owed to South Carolina will have priority over Amazon’s tax obligations in other states.

The DOR requested the ALC hear the motion on an expedited basis, prior to any hearing on the merits. A hearing on the merits is scheduled for November 2018.

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

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

For More Information

The Department of Revenue's motion is at http://src.bna.com/t9p.

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