California wants an Amazon headquarters, therefore doesn’t enforce Amazon collecting 3rd party sales tax.
Amazon gathers sales taxes on products it manufactures and sells directly, but doesn’t collect on behalf of third-party businesses that use its marketplace. O n June 21, the Supreme Court changed the face of online retail, upholding a South Dakota law requiring any business making at least 200 transactions or $100,000 in sales to collect state sales taxes, even if it has no physical presence within a state’s borders. Thin profit margins and cutthroat practices pit Amazon’s third-party sellers against each other.
However, Board of Equalization member Fiona Ma’s strategy requires that California join the tiny number of states willing to stand up to the 800-pound gorilla of online shopping, the source of nearly half of all e-commerce sales : Amazon. “Amazon was the first major American company that built its business based on tax avoidance,” said Oren Teicher, CEO of the American Booksellers Association, referring to the company’s continuous resistance to collecting sales taxes. Jeff Bezos notes that third-party sales represent more than half of the total units sold on Amazon.
While Amazon gathers sales taxes on products it manufactures and sells directly, it doesn’t collect on behalf of third-party businesses that use its marketplace. This may sound like a minor point, but in his annual letter to investors , CEO Jeff Bezos notes that third-party sales represent more than half of the total units sold on Amazon. Amazon offers essentially no tax assistance to third-party sellers, save for a couple of dry documents on its website. Third-party Amazon merchants can theoretically sign up for tax calculation services , but they must still register with states and file taxes on their own, in potentially thousands of jurisdictions.
When states tried to get third-party sellers to collect, Amazon didn’t want any involvement with the effort and refused to publicize it. The American Booksellers Association recently described the Amazon marketplace as the “Wild West.” Third-party sales on the website doubled in volume from 2014 to 2016. There’s a simple fix to all of this, says the Board of Equalization’s Fiona Ma: ‘Whoever’s collecting the money should collect the sales tax.’ The big winner in all this is Amazon, which reaps large fees from third parties for access to its platform.
Amazon typically takes 15 percent of gross third-party sales and sometimes as much as 20 percent, with fees on top of that for handling and shipping through the “Fulfillment by Amazon” network. It’s highly likely that Amazon clears more profit than marketplace sellers on their transactions. And, by not collecting tax, Amazon even avoids liability for mistakes made by third-party sellers that could trigger audits. A Delaware business that used Fulfillment by Amazon (FBA) services told her it only learned it was responsible for sales tax collection after receiving a bill for three years of back taxes.
Amazon VP on the company’s duty to collect sales taxes: ‘Well, if the state of California forces us to, I guess we can.’ “I found out that third-party sellers don’t actually know they should be collecting and remitting taxes to California,” Ma said. That Amazon wouldn’t also collect the sales tax seemed odd. In January 2017, Ma flew to Seattle to meet with Kurt Lamp, Amazon’s Vice President of State Tax and Tax Operations. He said, ‘Well, if the state of California forces us to, I guess we can.’” Some state officials put the annual amount of revenue lost to uncollected third-party sales taxes at $1.8 billion.
Last August, Ma wrote to state Cabinet Secretary Keely Bosler, asking that Governor Jerry Brown demand Amazon collect sales tax on all orders within the state, requiring California to audit only one company, Amazon, instead of thousands of third-party sellers. This would also pull in millions of transactions that wouldn’t otherwise be captured; just 20,000 third-party sellers generated over $1,000,000 in revenue last year, according to Amazon , and most states wouldn’t audit businesses smaller than that. Plus, taxing all sales would create more equal treatment between Amazon and the state’s local businesses, which create far more jobs and property taxes than Amazon’s handful of warehouses.
In Washington and Pennsylvania , Amazon and other platforms are responsible for collecting all relevant taxes on third-party sales. “Number one,” says Fiona Ma, “the governor’s office has been trying to woo Amazon into putting a headquarters here.” Tellingly, Amazon does not charge sellers anything for this service in Washington and Pennsylvania. The tax itself is just a pass-through to customers, and since Amazon already collects on its own purchases, collecting for third parties represents merely flipping a switch. Amazon has argued that the company is prevented from collecting on behalf of third parties unless states pass marketplace laws like Washington’s or Pennsylvania’s.
Cambra admitted that the agency has not referred any Amazon sellers for criminal prosecution. This January, the CDTFA sent letters to third-party sellers, citing sections of the state tax code to prove that they were liable for collection. A header in the letter, from November 2017, reads “Amazon Fulfillment Services, Inc. and Affiliates.” Amazon has willingly handed over third-party seller data to states like Rhode Island and Massachusetts — helping them target its own marketplace partners. Paul Rafelson, an attorney for third-party sellers, believes this indicates that Amazon drafted or supplied content for the letter.
Amazon did not play any role in that.” In March Rafelson started the Online Merchants Guild , an association advocating for e-commerce sellers. He argues that registering with states and remitting dozens of income tax returns overly burdens small businesses, and that having Amazon collect is the simplest remedy. “When I go to a state like Massachusetts, Illinois, New York and say, ‘You can get Amazon to collect,’ they’re fighting me like I’m the problem,” he said. “Nobody wants to tick off Amazon.” Amazon has even willingly handed over third-party seller data to states like Rhode Island and Massachusetts , helping them target its own marketplace partners.
“It’s striking to me as a citizen that your state’s tax enforcement resources would be deployed [to] going after small fry instead of doing the obvious thing of getting Amazon to collect sales tax,” said Stacy Mitchell of the Institute for Local Self-Reliance, a frequent Amazon critic. When Amazon first agreed to collect sales tax, it cut deals with states to delay collection or forgive back taxes , dangling warehouses and jobs as incentives.
Mississippi’s Department of Revenue admitted to a local TV news station last year that its agreement with Amazon to collect sales tax didn’t cover “any sales made by an independent third-party seller, even though made through the Amazon marketplace.” That enabled one Mississippian, Keith Bennett, to buy a laptop, mouse and bag worth several hundred dollars off Amazon and pay only $1.87 in sales tax; the computer sale went through a third-party business that literally named itself “Buy Tax Free.” Sellers have been the foot soldiers for Amazon in avoiding sales taxes for years. Now Amazon has abandoned them to fend for themselves against aggressive state governments.
Many willingly followed Amazon’s model of avoiding sales tax to gain pricing advantage over rivals. “Sellers have been the foot soldiers for Amazon on this issue for years and years,” said Stacy Mitchell. Now Amazon has effectively abandoned them to fend for themselves against aggressive state governments. Only one state, South Carolina, has argued that existing law requires Amazon to collect sales taxes. “Under South Carolina law third parties are not considered sellers but suppliers or consignors; Amazon is the seller,” said Bonnie Swingle, public information director for the South Carolina Department of Revenue.
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