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New Year Means New State Tax for Amazon

author photo of Jerry Donnini

With the holiday season behind us, many of us have now turned the page on 2013. Like the start of any year, most often reflect on the past year and look forward to new opportunities and challenges for the year to come. In the world of state and local tax, the Marketplace Fairness Act (“MFA”) and Amazon litigation dominated the front page in 2013. Looking forward to 2014, many of the same stories are likely to dominate the sales and use tax community. Therefore, it seemed appropriate for me to start 2014 with an Amazon piece.

As many know, Amazon has been battling in many states whether it should be required to collect and remit sales tax. Many states took the position that Amazon’s distribution centers or affiliates created nexus which gave rise to the dreaded “nexus.” If an online retailer (or any company) has nexus it is required to collect and remit tax in that state. With huge dollars on the table, Amazon threatened 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 x 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.

Each year that grace period is expiring in more and more states. In 2014, the so-called grace period expired in three more states. Starting in 2014, online shoppers will be charged sales tax by Amazon in Indiana, Nevada, and Tennessee. Overall, this brings the total to 19 states in which Amazon will charge, collect, and remit sales tax. Even more eye opening, those 19 states represent about 180 million or over half of the population in the United States. The addition of the three latest states will also generate more than $50 million a year in state tax revenue.

Although the Supreme Court declined to hear the Amazon case in New York, it should be interesting to keep tabs on litigation across the country in the coming year. We are seeing states become more and more aggressive and creative with their tactics to require online retailers, such as Amazon, to collect tax for its state. In other states, such as Missouri and Minnesota, Amazon elected to pull its affiliate programs. In effect, Amazon believes this prevents the state from forcing it to charge and collect tax. However, one can assume the states will come up with new creative ways to try and get all online retailers to collect tax.

Looking even further ahead, Amazon’s grace period expires in South Carolina in 2016 and it will begin collecting tax there. Resulting from a $300 million multi-warehouse investment, Amazon recently reached a deal with Florida to bring in over 3,000 jobs. Although the date is not set in stone, most commentators have reported the Florida project will be complete between now and 2016 which would force Amazon to charge tax to some 19 million Floridians for online purchases.

As one can quickly see, the marketplace is rapidly changing for online retailers like Amazon. One can also understand that as Amazon begins collecting in most jurisdictions, its support of national legislation such as the MFA is not that surprising. Further, the Supreme Court of the United States continues to show its disinterest for sales tax nexus cases. Eventually, a punt by SCOTUS will be taken by Congress and it will be interesting to see if we get national legislation in the coming year.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog . If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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