Amazon gives in to Massachusetts tax officials and agrees to turn over third-party seller data
Amazon gives in to Massachusetts tax officials and agrees
to turn over third-party seller data
Amazon has agreed to hand over data about sellers doing
business on its site to Massachusetts state officials to help identify
uncollected sales taxes.
Amazon initially refused to share the data back in
September, which had led to a court order forcing Amazon to turn it over by
mid-October.
The move is expected to lead other states to file similar
requests.
By Eugene Kim January 23, 2018
Some Amazon sellers could soon get calls from
Massachusetts state officials asking for unpaid sales taxes.
On Tuesday, Amazon notified its marketplace sellers that
the company has agreed to hand over important merchant information to the state
of Massachusetts — including their federal tax ID numbers and the estimated
value of inventory stored in Amazon's warehouses in that state.
The move — which is the first public case of Amazon
handing over seller data to state tax officials — will help the state of
Massachusetts identify which Amazon sellers may owe them unpaid sales taxes.
It could also mean incredible headaches for the majority
of third-party sellers who never comply with various state laws on sales tax
collection — if more states follow Massachusetts and demand unpaid taxes from
those sellers.
Amazon currently collects sales tax on products it sells
directly, but leaves it up to sellers on the platform to handle their own tax
collection. Those independent sellers are responsible for charging sales tax in
any state where they have a physical presence, including the states where they
store their products.
In the notice to sellers, viewed by CNBC, Amazon said it
would share the information with Massachusetts by January 26, 2018. Amazon
initially refused to cooperate in September, but said in the note it decided to
comply after receiving a "valid and binding legal demand" from the
Massachusetts Department of Revenue. It also advised the sellers to consult
with a tax adviser because "each seller's business and tax needs are unique."
The agreement would serve as an important case as it sets
a precedent for other states to follow. The U.S. Government Accountability
Office estimates that states are missing up to $13 billion in annual revenue by
failing to collect sales taxes from remote sellers.
"It's game on in terms of sellers being targeted by
states," said BuyBox Experts' partner James Thomson, who provides advisory
service to Amazon sellers. "Less than 10 percent of sellers are actually
sales tax compliant, so every state has an incentive to get this information
and audit sellers who aren't collecting."
Amazon vs. sellers
Scott Peterson, VP of U.S. Tax Policy and Government
Relations at Avalara, a tax software maker, says this case is being closely
watched because it shows states taking action to collect sales taxes rather
than waiting for new laws to get enacted.
"We are watching as the departments of revenue take
their own action rather than waiting for laws to change," Peterson said.
"We have seen enforcement of many kinds on the rise, but this is certainly
unique to watch."
The situation is made more complicated by the fact that
states have different sales tax laws —and have different rules about who is
responsible for collecting them.
Some states, like Washington, Minnesota, and Rhode Island,
have recently passed new laws requiring online marketplaces — like Amazon — to
collect sales tax on behalf of its third-party sellers. South Carolina has
filed a complaint arguing existing laws would make Amazon the responsible party
for third party sales tax collection.
Massachusetts, however, doesn't have any existing laws
requiring Amazon to take action. And if successful, other states that don't
have similar laws in place will certainly look for ways to follow suit as it's
easier to target individual sellers than a big company like Amazon.
"Successful strategies take on a life of their
own," Peterson said. "I would anticipate other states are paying
close attention."
Dog and pony show
The move is an about-face for Amazon. After the company
refused to cooperate in September, the state of Massachusetts filed a court
order forcing Amazon to turn over the data by mid-October. It wasn't clear if
Amazon would relent or fight the court until now. (Amazon declined to comment,
and the Massachusetts Department of Revenue didn't return a request for
comment.)
Peterson noted that when someone uses language like
"valid and binding legal demand" and agrees to comply, it typically
means its lawyers have believe they're likely to lose in court.
But Paul Rafelson, a law professor at Pace University and
a former tax counsel at GE, had a more nuanced view of the incident.
He says, given how common these requests are, it was
strange to see Amazon react so aggressively against turning over the data.
Instead, he thinks Amazon's resistance was likely a "pretend fight"
put on to mitigate its liability against any seller that might decide to sue
them over failing to help them be more tax compliant. Because Amazon currently
takes a hands-off approach to third party sales tax collection, the company
would be able to use this as one evidence of "sticking up for the sellers,"
he said.
And the situation only gets trickier as Boston is in the
running for a bid to win Amazon's second headquarters. Cities are offering all
kinds of tax incentives to get Amazon's HQ2, which would create 50,000 new jobs
and attract over $5 billion in investments.
"This is a bit of a dog and pony show,"
Rafelson said. "This is such a basic request that there's no reason why
Amazon wouldn't turn it over. It's just making kind of a big public show."
Comments
Post a Comment