South Carolina wants Amazon to collect use tax on sales made on its platform by 3rd party sellers to South Carolina residents

Today I want to talk about selling through Amazon’s Fulfillment by Amazon (“FBA”) program. Let’s say your Arizona based company sells books on Amazon through the FBA program. For a FBA fee, your books are stored by Amazon. Amazon’s website processes the book sales, collects the purchase price and ships the books to your customers.

However, Amazon does not collect use tax on the sale, unless you pay them to do so, and probably you would only collect sales tax from sales made to your Arizona customers. South Carolina believes that use taxes on your FBA sales to its residents should be collected. It estimates that it is losing annual use tax revenue in the amount of $500 million from Amazon’s FBA program.

Not surprisingly, South Carolina has gone after Amazon to force it to collect use tax from FBA sales made to South Carolina customers. Also, no big surprise that Amazon is fighting South Carolina in the state’s Administrative Law Court.

The South Carolina Administrative Law Court case is Amazon Services LLC v. South Carolina Department of Revenue (No. 17-ALJ-17-0238-CC).

Comment. Under current law, South Carolina cannot compel anyone to collect use tax from sales made to South Carolina customers unless the seller has a physical presence in South Carolina. This “physical presence” requirement is based upon a long-held decision of the United States Supreme Court.

Amazon claims that it has no obligation to collect use tax from South Carolina because it does not have a physical presence in the state. However, the U.S. Supreme Court has recently accepted a case for review which could end the physical presence test. If that happens then a new high court rule may mean that either Amazon or its FBA etailers will have an obligation to collect use tax from out of state customers.

By John McCauley: I help people buy and sell businesses.

Email:        jmccauley@mk-law.com

Profile:       http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles