In October, 2014, Amazon customers will be charged higher prices in two more states. Specifically, effective October 1, 2014, Amazon began charging customers located in Maryland and Minnesota sales tax on purchases from the online retailer. This marks the 22nd and 23rd states in which Amazon now charges sales tax to customers. So that means customers will now have to pay tax for the first time in these states, right?
As many in state and local tax world know, Amazon has been battling in many states whether it should be required to collect and remit sales tax. Most states believe that Amazon’s distribution centers or affiliates created nexus which gave rise to the dreaded “nexus.” If any company, including an online retailer, has nexus it is required to collect and remit tax in that state. Amazon responded by threatening to pull its affiliate programs in those states which, in turn, would cut tens of thousands of jobs. Fearful of huge job cuts in a struggling economy, many states allowed Amazon a grace period, permitting the company to continue its program and not collect sales tax for a designated number of years in the future. Once the grace period expired, then Amazon would have to charge, collect, and remit tax. In return, the state would keep its jobs as well as get more tax revenue going forward. It appeared to be a win-win for all parties involved.
Despite numerous rumors, Amazon’s decision to collect tax in a new state tax does not create a new tax. Rather, if you purchase a taxable item online (in any state) and tax is not charged, then you have a duty to remit the use tax yourself. That being said, I regularly speak at sales tax seminars and the audience typically laughs when I ask how many people actually participate in this routine. For example, in Florida, a consumer can report and pay Florida use tax on a Form DR-15MO, which can be found on the Florida Department of Revenue's web site. However, I would be curious to hear how many Florida residents have ever seen this form let alone filed one. Most states have a similar mechanism to self-report use tax on online or mail order purchases by customers.
On the flip side, if your company has nexus and has not been charging tax, it could be a time-bomb from a state and local tax perspective. If you are not sure whether your company or your client’s company has nexus, then a nexus study may be appropriate. A voluntary disclosure is often a less painful way to cut periods of tax exposure. Worse yet, many states impose personal liability to officer’s who should have known that nexus existed for years and penalize them personally. Still in other situations, nexus exposure can put a potential business sale to bed.
As it stands now, according to Bloomberg, Amazon collects tax in the following states
Arizona Kentucky Pennsylvania
California Massachusetts Tennessee
Connecticut Nevada Texas
Florida New Jersey Virginia
Georgia New York Washington
Indiana North Carolina West Virginia
Kansas North Dakota Wisconsin
Other recent “Sales Tax Nexus” posts by Jerry Donnini:
- Factor Presence Nexus Constitutional in Ohio: Other States to Follow?
- Is Alabama’s Economic Nexus Standard Another Attack on Quill?
- Does Nexus Trail a Company After Leaving a Jurisdiction?
- Nexus Update: Washington Enacts New Nexus Standards
- New Proposed Nexus Legislation – Not Very Helpful