South Carolina Seeks Collections From Amazon Marketplace Sellers

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By Andrew M. Ballard

The South Carolina Department of Revenue is accepting retail sales tax applications from Amazon’s third-party marketplace sellers.

According to a Feb. 23 notice, suppliers selling goods on Amazon.com to South Carolina purchasers have requested guidance on potential tax liability due to pending litigation over who is responsible for collecting sales taxes on those transactions. The DOR said it’s now accepting applications so retailers can collect and remit the applicable taxes that are due until a legal dispute between the department and Amazon is resolved.

Richard Handel, a tax law professor at the University of South Carolina and former general counsel for the DOR, told Bloomberg Tax that third-party vendors should evaluate their contracts and weigh their risks before deciding whether to collect the taxes at issue.

Administrative Judge Considering Issue

Amazon Services LLC is challenging a June 2017 assessment of nearly $12.5 million in uncollected taxes, penalties, and interest from third-party sales. An administrative law judge recently rejected the DOR’s request for an injunction requiring the Amazon subsidiary to immediately collect and remit those taxes as the court considers the merits of the case.

Handel said he wasn’t sure the department would receive much of a response to the new notice, as some marketplace sellers might have already registered or are participating in a state voluntary disclosure program.

“In order to determine whether to register, I would think a seller would have to evaluate their contract with Amazon,” he said. If Amazon ultimately loses, sellers should try to determine whether the online retailer will hold them harmless or demand payment from sales until it recoups taxes the company had to pay on the vendors’ sales, he said.

If they are at risk, “they would then have to evaluate whether they can afford to lose and how many sales they’d lose if customers were charged sales taxes,” he told Bloomberg Tax.

Registration Options

Third-party sellers can register online using the DOR’s 24/7 online tax service portal, MyDORWAY, or file by paper using form SCDOR-111. The department said in its notice that third-party suppliers who have already registered as a retailer may keep their current license.

Amazon began collecting sales tax for South Carolina last year, after a five year “safe harbor” on such assessments expired.

However, according to the DOR, the company owes millions of dollars in uncollected taxes from third-party sales. Amazon argues that the department is improperly trying to shift the responsibility of collecting taxes onto the company.

“The SCDOR maintains that Amazon Services, LLC is the retailer responsible for collecting and remitting Sales and Use Tax on all goods sold on Amazon.com,” Bonnie Swingle, department spokeswoman, told Bloomberg Tax. “At this time, we do not have further comment,” she said in an e-mail.

Marketplace Laws ‘Biggest Trend’

The future of marketplace-provider laws requiring Amazon-type platforms to collect tax on its third-party sales hinges on a monumental U.S. Supreme Court case, according to tax professionals.

Liz Malm, director of strategic government relations and economist at the consulting firm MultiState Associates Inc, told Bloomberg Tax that marketplace-provider legislation could spike once the U.S. Supreme Court reaches a decision in South Dakota v. Wayfair. That case will reconsider the 1992 precedent laid down in Quill Corp. v. North Dakotaprohibiting states from imposing tax collection obligations on vendors without a physical presence in-state.

Assuming the court sides with South Dakota, Malm said she would expect marketplace-provider legislation to “be the biggest trend of 2019.”

This year, New York and Hawaii have introduced legislation containing marketplace provider provisions. New Mexico also considered similar proposals, but the bills died in session.

Pennsylvania, Rhode Island, Washington, and Minnesota were the first states to enact marketplace-provider provisions, doing so in 2017.

With assistance from Ryan Prete in Washington

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C. at aballard@bloomberglaw.com

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

For More Information

Text of the notice is at http://src.bna.com/wCi.

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