Sales Tax and Amazon FBA: Have We All Been Getting It Wrong?

Alex Knight interviews attorney Paul Rafelson about US sales tax for Amazon FBA sellers, and the MTC’s amnesty. Should you opt in?

As you may have seen, sales tax is a rather hot topic for Amazon sellers at the moment, following the Multistate Tax Commission’s decision to hold a US sales tax amnesty for online sellers.

With the October 17th deadline looming, there is much debate about whether Amazon sellers are even liable for sales tax, and whether they should make a voluntary disclosure under this amnesty. This week, I spoke to Paul Rafelson, a state and local tax attorney, to get his opinions on both of these topics.

What Paul said surprised me, as it was very different to the orthodox view of FBA and sales tax. Ultimately, he believes that Amazon sellers who fulfill their orders using FBA may not be liable for sales tax at all. His contention is that sales tax “nexus”, usually the key consideration for Amazon FBA sellers, is actually irrelevant, because Amazon itself is the “retailer” under sales tax law and should be responsible for collecting sales tax themselves.

We also talked about the MTC amnesty, which Paul believes Amazon sellers should not comply with because, in his opinion, it is a bad policy, based on a weak understanding of the realities of selling on Amazon. He also fears that if sellers comply, they could be hit with further taxes, such as income tax and franchise tax, and end up crippled by a huge compliance burden.

You can watch the full interview with Paul above, and we’ve also included a full transcript of the conversation.

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Transcript

Alex: So Paul, in your opinion, does selling through Amazon marketplace, and using FBA, create a sales tax liability for most states?

Paul: I absolutely do think it creates a sales tax liability in most states, it’s just about whose sales tax liability it is. In my opinion, if you look at the law, it’s Amazon’s responsibility, and not your responsibility as sellers.

Just to stop you there for a minute, Paul, it seems that your opinion of FBA and sales tax is quite different to the orthodox view.

Sure, and I certainly understand that sentiment, because I think from the orthodox point of view, people have been asking whether they have a physical presence because that’s sort of the rule about whether a state can force you to collect sales tax.

My point of view is that it’s not about physical presence, it’s not about nexus, it’s about who’s the retailer – who’s the “Walmart”. And, in this situation, Amazon is the same as Walmart, Amazon is the same as Target, Amazon is the same as Best Buy. They don’t get to be special. They have a nexus in the state, they’re a retailer and they collect tax, this doesn’t change whether they sell Amazon products or your products, it’s the same thing.

It’s not about physical presence, it’s not about nexus, it’s about who’s the retailer.

Think about it hypothetically: Coke and Walmart might both have nexus in Georgia, the same as third party sellers might have nexus with Amazon FBA. But, we know that there is no agreement that Coke and Walmart can execute that would ever allow Walmart to skirt its responsibilities on collecting tax on Coke sold at a Walmart.

It just isn’t allowed, they couldn’t decide that they’re now the “Walmart marketplace” in their Atlanta store and tell Coke, “you own your inventory in our store and you’re now the merchant of record and we’re going to do all this legal fiction”. And then, at the end of the day, when a person buys their Coke from a Walmart fridge, takes it to the register, and pays for the Coke, decide they’re not going to collect tax on it.

No state would ever allow Walmart to get away with that and so what states need to understand is that this is exactly what they are doing with Amazon, when they say Amazon isn’t responsible for collecting tax and you [sellers] are. They are basically falling for that sort of idea that you can contract your way out of basic sales tax collection responsibilities.

Amazon has nexus in every state that they collect in, so they [Amazon] are the ones that should be collecting the tax. So, whether or not you have nexus is really irrelevant for sales and use tax purposes.

So just to summarize that for our viewers, it’s your opinion that the common belief out there is wrong, and that selling through Amazon marketplace and having your orders fulfilled through FBA doesn’t create a sales tax nexus. So if we’re looking at the wider issue of the amnesty, what is the amnesty called, and what is it offering to sellers, Paul?

Okay, well before I get to the amnesty, let me just clarify something you said, because I hear that a lot – “you’re saying that they don’t have a sales tax nexus”. No, I’m saying that whilst I don’t think sellers have nexus, even if you did, you don’t have a sales tax collection responsibility. It’s not Coke’s responsibility to collect the tax in a Walmart – it’s Walmart’s.

Think of yourselves as suppliers and not retailers, which is what you are, and see Amazon as the retailer, who should be collecting the tax. So your nexus, whether or not you have it, is irrelevant for sales and use tax purpose.

Now, what is the amnesty? It’s the Multistate Tax Commission’s (MTC’s) online marketplace seller voluntary disclosure initiative. The MTC is sort of like a trade organization, it’s not the government, it’s an organization that represents the interests of state tax departments and state taxing authorities. It came about in 1967, at a time when states were worried about Federal legislation that would trump the ability of states to have their own tax laws. So the MTC and the multistate tax compact, which was sort of this uniform tax law, came about and that was supposed to send the signals to Congress that they didn’t need federal intervention.

I don’t know how successful that has been because a lot of states have decoupled at various points, but the MTC still exists and is designed to promote uniform tax law and compliance with taxes.

Anyway, the MTC were approached by some Amazon sellers organizations that gave them the impression that they were representing the entire Amazon community and said, “Hey, this amnesty is something we would like you to consider because we have a lot of sellers who are being audited by states, and those that are worried about being audited, that just want to come forward, come clean and get a clean bill”.

It’s just horrible that you only get 60 days to comply. We would never put up with that at Microsoft, GE or Walmart.

So, they negotiated this amnesty with a 60 day deadline, which for me, is just horrible that you only get 60 days to comply. We would never put up with that at Microsoft, GE or Walmart, we would always have at least a year to figure this stuff out. I mean 60 days is just crazy for companies that don’t have tax departments.

The reason they did it that way was because, in the MTC’s view, they are willing to waive the back taxes because they are going to be collecting during Christmas 2017, the busiest time of year. So, that’s why the timing was set that way.

My big problem with all of this is that no one from the state and local tax law community, not even a qualified state tax accountant from one of the big firms, who I think are very good, was there in this negotiation. So, however this was negotiated, it was based on the assumption that nexus is the issue, and that there is no question about who the retailer is. It is my belief that any state or local tax lawyer, who has been in this field for even five years, would have probably figured out that that’s not the right way to go, and that it’s a really bad way to handle it from a policy perspective.

How did they get here? I think this is partly because states just don’t understand the facts. They just think that selling on Amazon is the same as selling on Craigslist. They don’t understand what it’s like to be an Amazon seller and how different it is to selling on any other marketplace, they don’t understand how little control you have and how much control Amazon have. The MTC tells me that Amazon is a mall or a flea market, but I think we all know that’s not true.

States just don’t understand the facts. They don’t understand what it’s like to be an Amazon seller and how little control you have.

Amazon sellers aren’t the same as retailers at the mall. When I go to the mall and go to Bed, Bath & Beyond, they always take my name down, and send me 100 of those stupid 20% off cards every week. You aren’t allowed to do that on Amazon, it’s in the terms and conditions of your contract, you aren’t even allowed to get your own client list from this.

Also, I don’t pay the mall when I go, I pay my retailer, I pay the store that I’m buying things from. If I have a problem with something I buy, I don’t complain to the mall, I complain to the store. The mall is not going to stick up for me if I have problem – they probably don’t care!

Finally, the mall isn’t going to seize inventory. They aren’t going to seize Apple’s iPhones because of some issue, and they aren’t going to force Apple to give me a refund.

There are just things that malls and marketplaces don’t do that are indicative of the fact that Amazon is a retailer. And, because states don’t understand that, and because the MTC doesn’t understand that, they’ve been operating on the false assumption that Amazon sellers are just in this sort of open marketplace, and that’s just not true.

So should sellers comply with the amnesty?

I think sellers who are seriously thinking about complying with it, especially if they have a big liability, need to seek counsel. I mean if there is potential to clear a liability in Florida and you have no income tax in that state otherwise, because you’re structured appropriately, maybe it’s not a bad idea.

I think it’s bad policy and a path to major compliance burdens because if you set the tone that this is the law, then it sort of just becomes law.

For the most part, I don’t generally think that people should comply, but I can’t give you that specific advice without telling you to talk to your lawyer first and look at your own facts. Personally, I think it’s bad policy and a path to major compliance burdens because if you set the tone that this is okay, and that it’s the law, then it sort of just becomes law. This means you’ve then lost your opportunity to say, “wait a minute shouldn’t this have been Amazon’s burden the whole time?”, because that’s what the law really said.

So what ends up happening is that now mom and pop stores in Idaho have the same compliance burdens as Google, in terms of tax. This means that all of a sudden they’re spending $30 per return, in every state, every month, to file their sales tax returns. They are also now subject to income tax, franchise tax, and all these other taxes they’ve probably never heard of, which cost $500-$1000 annually. The next thing you know, they have a compliance burden of $50,000, $60,000 or $70,000 every year, and that is what this is a path towards, all because of a bad policy and bad application of the law, which has been based on a bad understanding of the facts.

So no, I don’t think this is the time to comply. You shouldn’t comply with something when the whole thing has been predicated on bad information. But everyone’s circumstances might be a little different and maybe there’s something you should do. For instance, if you’re selling on other marketplaces, maybe there’s something there. I don’t know, I’m not speaking for Etsy [for example], as I don’t know their facts, so it might be a different situation. But my big picture belief is that, for most people, it’s probably not a great idea to participate in this.

So essentially what you’re saying there Paul is it’s a bit of a wolf in sheep’s clothing situation. Sellers are coming along, they think it’s nice and gives them the opportunity to say ‘hands up I haven’t been paying my sales tax’, without getting penalized over and above what they owed, not realizing that what they are walking into could open a can of worms for sellers of further compliance to other, different types, of taxes.

Yeah, absolutely. I mean they are falsely accusing you of civil tax evasion and then forgiving you for it at the same time. They are essentially saying we aren’t going to make you pay back sales taxes, which you didn’t really owe them in the first place, but you do have to pay back income taxes, which you may or may not owe, because that is a nexus question.

If you look at what South Carolina are doing in their lawsuit against Amazon, you’ll see that there are questions about whether you even own your inventory, if it’s commingled or you use FBA. So there’s a lot of questions about whether you even have nexus, and by complying with the amnesty you’re sort of conceding all those points.

There’s a lot of unanswered questions, that are very good questions, which need to be figured out before you should be complying.

You also have to remember that when you’re in compliance, it’s very hard to get yourself out of it. So I wouldn’t be jumping into this right away because there’s a lot of unanswered questions, that are very good questions, which need to be figured out before you should be complying. You need to know the right answers, otherwise the cost might be too much and you’ll find out two, three, or four years from now that you should never have been doing it in the first place – and that’s bad news. I would rather people not do it, that would be my preference, but again everyone’s facts need to be checked by a lawyer.

If you’re under audit too, then definitely get a lawyer. I hear a lot of stories about people under audit and Washington State is apparently really aggressive. This is no surprise considering that it’s Amazon’s state, they aren’t about to go and tell Amazon to collect, and lose their competitive advantage in their home state.

So if you’re being audited I’d say lawyer up, and that doesn’t mean take this to the Supreme Court and incur $100,000 of legal fees. What I mean by “lawyer up”, is that states like Washington are just picking off people left and right, and everyone they send a letter to pretty much just pays. It’s the easiest money they’ve ever made, because they are just going after every one of you individually, like little fish. So if you’re the one fish, or ten fish, out of 100 that lawyer up and show that you actually understand Washington State law and how under it you aren’t responsible for the tax, there is a pretty good probability that the state is just gonna leave you alone, or dial back.

Why is this? Let’s say you’re one out of 100 that pushes back and they keep putting pressure on you and say, “we’ll fight it out in court”. So you got to court, or an administrative hearing, and let’s say that you get a ruling in your favor. They have now lost their chance to go and bother those 99 other fish. In other words, them fighting you might be more risk to them, on the downside, than winning against you is on the upside. If they win against you they might make a few thousand dollars, but if they lose, they lose their right to collect tens, hundreds, or even millions of dollars, from the other 99 fish.

So don’t assume that just because me, or someone else who knows state and local tax, says, “hire a lawyer”, that the lawyer is going to want to drive you to the Supreme Court, and that’s the strategy, because it’s not. The strategy is just to show a little bit of push back and, just by being a little more difficult than the next guy, you might find the state will just leave you alone.

There are clearly other points of view out there, but if a seller has come round to your point of view, other than take on a lawyer, what can your average Amazon seller do to stand up, make their mark, and say, “I don’t agree with this whole amnesty process”.

Sure, well we are asking people to sign our petition. It is anonymous and we are just trying to get a count of how many people are upset about the amnesty. Through the petition, you can make a contribution which helps us hire lawyers, public relations professionals, or whatever we need to help fight the fight, and work the fight behind the scenes.

I’m talking to states everyday and it’s an intense battle. In some states I’ve noticed there’s a political angle, and that’s a problem.

I’m talking to states everyday and it’s an intense battle. In some states I’ve noticed there’s a political angle, and that’s a problem, but for a lot of these states they were just misinformed by the MTC and are now really considering whether this a policy they want to continue with.

Basically all I’m trying to do is the same things I would do if it was happening and affecting companies like Microsoft or GE, as this is what we would do, and we would have the resources to do that. But Amazon sellers as individuals do not have those resources, so I’m trying to collectively bring everyone together. I wish I could do it in a more organized way but with the impending deadline, I’ve been trying to move quickly.

In order for us to keep doing this, we need support, because it’s not an easy, or cheap, battle to fight. If you don’t feel like supporting us financially, for whatever reason, we could also use your help just through connections. If you know somebody, if you have a media connection, if you have a local news contact, reach out to them. Don’t be afraid to tell them your story, and tell them what the states are trying to do. Tell them that your state is participating in this amnesty, and basically endorsing and acquiescing to states coming in and forcing you to comply with a massive burden that puts you out of business. Equally, if your state isn’t on the list of amnesty states, tell the local news outlets that your state isn’t doing enough to stick up for you, and is allowing other states to come in and put this burden on you.

Alternatively, talk to your congressman. This could be anonymously, as you don’t have to give them your name and information. You can just call them, say you’re a seller and explain what you do and what your state is doing to you.

As we get more attention, more people will start to realize that politicians are being shown as anti-small business, which will make politicians move faster to put pressure on the department of revenue, for each of those states, to stop this program.

But let me be clear, I don’t really want to stop this amnesty, I just don’t want it to apply to Amazon sellers, because their facts don’t fit. There might be people who need this program on other marketplaces, as I don’t know what Etsy [for example] is all about, and that’s fine, keep it for those people. But for Amazon sellers we need clarity, and we need an understanding from the states, that when they look at your facts, none of this applies to you.

Paul, thank you very much for your time.

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23 comments on “Sales Tax and Amazon FBA: Have We All Been Getting It Wrong?

  1. This is such a big deal. Thank you for conducting this interview and Paul, thank you for providing an interpretation of the law that actually makes sense rather than what has been the accepted version thus far! You are helping so many sellers and small businesses that might end up loosing everything if this doesn’t become the new stance on sales tax within amazon’s marketplace. I will do everything I can to share your thoughts and reasoning with the right people. Thank you.

  2. At last, someone on the same page as me.
    I have been saying that it is Amazon’s responsibility all along.
    Apart from anything else they are the ones “in control” of all the details about to whom and to where the goods are shipped.
    Therefore they are clearly the best placed to both collect and disburse any Sales Tax.

  3. Of course it is. Unfortunately, nobody in the media seems to get that states are actually politically placating to Amazon.

    This whole thing is political. States don’t want to be anti-Amazon right now.

    Whatever you or anyone reading this can do to help shine a light on this situation would be helpful. I’ll talk to anyone who can get our story out there.

  4. What amazes me on this entire issue is that it could all be so easily simplified, by getting the credit card companies to calculate and collect the sales tax electronically.

    All it would require is a simple program to calculate the tax based on the location of the purchaser making the purchase and then paying and sending the respective States their tax directly.

    This way only a few credit card companies are involved instead of a bureaucratic nightmare dealing with millions of online sellers.

    Is this too easy?

  5. Hi Paul,

    Thanks for doing this interview. You have cleared things up a lot for why Amazon should be the one collecting sales tax. I started selling on Amazon in 2014, and am a small seller, maybe $10,000 – $20,000/yr total. I got scared into collecting sales tax from my nexus states shortly after I got started by reading stuff from organizations like TaxJar and Avalara, who of course profit from scaring us into collecting tax. (except that as a kind of “up yours” I do all of my own tax computations b/c I don’t make enough money to pay them to do it). Anyway, I’m up to about a dozen states that I now file with (pain in the butt!), but there are a couple I’ve procrastinated with where I’ve established nexus over the past year. I’d like to stop adding states b/c the administrative burden is becoming overwhelming.

    2 Questions:

    1) Is the fact that I’m already filing sales and use tax returns with a dozen states make me more of a target for other states who I establish nexus with over time (but ignore going forward and just stick with paying my current states)? Should I use the tax amnesty on the 2 states that I’m procrastinating with?

    2) If and when a ruling finally comes about in favor of the seller (that Amazon must collect sales tax), how easy or hard will it be for me to withdraw my registration from each nexus state and have them be satisfied that Amazon (and not I) will collect and submit sales taxes? Or will they still be a thorn in my side?

    Thanks again!

    1. I’m not sure it matters as much that you are registered when states are going after customer lists, as I predicted at the beginning of this. States have the right to share information, so it’s anyone’s guess as to how they may go about pursuing sellers whether via a list from Amazon, or some other information sharing right, or even sharing the Amazon list. It’s also not clear on what scale the are interested in going after sellers, I was told by the MTC the states would be adhering to a threshold, but they refused to make an official statement because the didn’t want to discourage anyone from joining. Not really sure I buy the logic.

      De-Registering from a state is always a huge pain, and states don’t want to let you go. However, if we get that big win through either legal and/or political channels, in that case it may not be so bad since the states are basically being told they have to let you go. Although, that depends on whether we win the issue of sellers not being on the hook for income or other taxes, or just sales tax.

      To answer some of your questions at that level of detail I would need to know your facts a little better. You can email me at tax@ecommercechris.com.

      1. Awesome interview Paul! I recently started collecting sales tax in California due to fear mongering of Taxjar and other sites. My sales have dramatically declined since I did so. A lot of my sales happen in California and charging sales tax is putting me and a huge disadvantage and if I continue to do so I think I will have to stop doing business. (I was crushing it before I did this) Can I close out my California account, refund the sales tax, or just pay what i collected and close it out. Thanks. If you have more to say about this and think you could help I would be more than happy to pay $500. Thanks again Paul for the great interview.

  6. If I am located in Dallas, Texas and use FBA to sell on Amazon; should I have Amazon collect the sales tax so that I can remit that sales tax to the State of Texas? Or, as Paul discussed in the video, does Paul believe this is a tax collection and remittance burden for Amazon itself even though I have nexus from my offices being located in Texas.

  7. For Sales and Use tax purposes, I have said from the start that I believe the seller’s nexus is irrelevant for purposes of your Amazon sales.

    This is because, as I understand the general facts, Amazon is the retailer/vendor, and we know that Amazon has nexus in Texas (rhymes).

    Therefore, using Texas as an example, consider Walmart and Dell.

    Both Walmart and Dell have nexus in Texas (Texas via its HQ in Round Rock and Walmart via its physical stores).

    However, just because Dell also has nexus in Texas doesn’t mean Dell is required to collect sales tax on Dell PCs sold inside a Walmart. That would be silly, and that’s not the law.

    Your having to collect on your Texas Amazon sales just because you also have nexus in Texas, to me, is the same legal absurdity as Texas telling Dell, they are responsible for collecting sales made inside the Walmart. Again, totally nonsensical, and it’s not the law.

    That said, if you have other website sales, you may have a collection burden in Texas for those sales, but still, not Amazon.

    I’m not telling you what you should do, other than if you have questions talk to an adviser. I’m just telling you how I see it from my many years of state tax controversy POV.

  8. I am not getting this analogy. Coke isn’t selling cokes at Walmart. Walmart is buying coke from Coke and then selling it in their stores.

    1. Just to explain further, if you are selling stuff at a market, you have to pay taxes on the things you sell. The market isn’t paying the taxes for you.

  9. How about international sellers doing FBA? I know the general idea is that the FBA stock in each fulfillment center is considered nexus but do we have a “bigger break” than US companies?

    Thank you for your this interview, it’s nice to know someone is fighting this since we have no control of where our FBA stock is warehoused or in how many states.

  10. If you are getting audited by a state after the amnesty end date and they see you are not paying sales tax in their state, do you need to start pay sales tax only in that state or is it a risk that you will also need to pay it in all other states? What I’m trying to say is, are all states connected when it comes to sales tax?

  11. Based on my simple understanding of the matter, the MTC is not even a government body. They are a for-profit organization that supports the interests of the state tax departments by helping to facilitate compliance and remittance for FBA sellers, without even realizing how FBA is actually structured and ignoring the facts (laws). FBA sellers are being enticed to essentially lock themselves into a costly financial situation that is very hard to get out of once you sign on the dotted line and pay for the ‘privilege’ to collect and remit in the various states. Sellers are getting fooled into believing that they should be collecting and remitting instead of Amazon, which is a complete violation of constitutional and state law.

    The fact of the matter is, /Amazon/ should be the one collecting and remitting. Some states recognize this, but are scared to force Amazon’s hand because they have contracts in place with Amazon and/or are concerned that Amazon would pull the plug on the various economical benefits that the states see or may see by having them there. Amazon actually has contracts in place with various states that allow them certain tax breaks and exemptions, just for bringing jobs or a warehouse to their state. These political hurdles are a real problem and a conflict of interest.

    Some of you may or may not remember, but Amazon has actually threatened to leave states before whenever a tax dispute came about. Back in 2010, I believe it was, the State of Texas issued Amazon with a tax bill of nearly $270 million. Wouldn’t you know, Amazon actually tried to claim that the distribution centers were subsidiaries and not actually Amazon, in an effort to dodge the bill. Their argument didn’t work, so they threatened to pull the plug and leave Texas, while also making sure to announce that they had intended on hiring 1000 additional workers prior to the dispute. Guess what happened, Governor Rick Perry blamed it on the comptroller and made a statement basically saying that the comptroller made a mistake and why Amazon shouldn’t be responsible for the sales tax because you couldn’t go in and buy anything out of their store…that they didn’t have a storefront, and that it was specifically there to manage products that needed to be shipped out, which is not historically in line with how they had defined whether or not you would be responsible for sales tax. He then asked state legislature to craft some new rules that would keep Amazon from leaving. Sound like a conflict of interest to you?

    Amazon has contracted their way out of sales tax liability on all FBA sales by establishing their own set of rules and policies that many FBA sellers just believe as fact, but are actually pure fiction and do not correlate with the law. This legal fiction has been perpetuated by Amazon for some time and there are not enough people that know any better to put a stop to it or voice their concerns to the appropriate legal bodies.

    If there is ever any legal precedence that would allow Amazon’s relationship with FBA to help eliminate sales tax liability and responsibility for Amazon, then any large, big-box retailer could simply imitate that FBA relationship with their suppliers and not be responsible for collecting in their physical retail stores. This will never happen.

    Suppliers have a resale exemption for the purpose of avoiding double taxation on sales tax. FBA sellers are suppliers to Amazon’s consignment program. For any consignment, the retail owner (Amazon) is required to collect and remit all sales tax. As it is now, states are placing an undue burden on small business owners — which is NOT legal.

    This whole argument that I keep hearing that not having FBA sellers responsible for collection and remittance would require a huge overhaul of our tax system is nonsense. It is simple; treat FBA sellers as suppliers (or consignors), which they should be treated, and be done with it. The states could ensure 100% remittance in lieu of the costly burden involved with allocating resources to track down, investigate, legally pursue and audit the 100’s of thousands of small business owners that currently sell via the FBA program — which would likely only yield a small fraction of what they are actually owed, since most of the sellers that sell on the US marketplace are operating on foreign soil, using foreign bank accounts, outside of the jurisdiction of US law. It is all absolutely nonsensical when all they have to do is have Amazon collect and remit, as they should already be doing. Amazon is already set up to do this; it would be like flipping a switch for them. “But Amazon could threaten to leave our State!” — Not if all states agree. Where will Amazon go? To their floating warehouses in the sky (yes, that is a real idea that they actually have a patent for). Sound crazy? Believe it. And what good would the states see if Amazon keeps pushing for automation anyway? How many jobs will be created then? Amazon is already using robots to manage inventory and is testing self-driving cars. You think those drones will all be manned by real people? Eventually not. Amazon already has warehouses that are mostly automated. They have plans/patents filed to use underground logistics systems that will automatically transport goods from warehouse to warehouse. Good luck trying to cater to Amazon when they no longer need you.

    By having 3P sellers collect and remit, Amazon has a huge advantage over retail brick and mortar as well as online E-commerce etc., because they know that most sellers will not or cannot do this, which will allow them to push products in their marketplace at prices that are not possible to compete with. It’s a huge, unfair advantage and Amazon knows it. It has caused many businesses to go under and is part of the reason that there are so many ghost malls and abandoned retail stores in this country. Nearly everyday, you read about some large retailer that is having to close up shop because they cannot compete with Amazon. Where is the economical benefit in that? Amazon brings jobs to the state — but at what price? What about what they take away?

    If Amazon was really concerned about compliance, at the very least, they could set up FBA to automatically collect the appropriate amounts for each state and have those amounts automatically charged and paid into the accounts of FBA sellers for remittance. A simple ‘I accept w/digital signature’ to clear any permission issues, and it’s done. Amazon will not do this because:

    1. They know that it could kill their competitive advantage by keeping those hurdles in place and ensuring that most sellers will not comply.
    2. They know that they should be the one collecting and remitting, and keeping this fiction in place that has everyone believing otherwise will further ensure their domination in all, online and offline marketplaces.

    Instead, they make FBA sellers set up all of that stuff for each state, then have the audacity to charge us for collecting it — like it would be any more work for them to do that! Give me a break. They could literally flip a switch to auto-collect for any and all accounts that opted in.

    Don’t even get me started on how Amazon caters to foreign sellers. Amazon knows what they are doing. Most FBA sellers know what they are doing. Amazon has been wanting to push these direct sales from Chinese manufacturers on to their marketplace because they know that it would give them an even bigger advantage over competitors by cutting out the middleman. They allow foreign sellers to break policy, infringe on IP, abuse the system and get away with just about everything. They know that there is little-to-no, legal recourse for US sellers because these foreign sellers are operating outside of the jurisdiction of local, US law. Amazon doesn’t care.

    Could Amazon require all FBA sellers to have a local, US entity set up in the US with a local, US bank account in order to sell on their marketplace — YES! But they won’t. They would never do that. Why? Because it would kill their competitive advantage.

  12. Alex and Paul, your argument that Amazon is liable for Sales Tax collection on FBA sales is very strong based on the fact that they are in fact at least considered to be the consignee because they have a fiduciary responsibility to the Amazon seller and owe an accounting to him. (As far as New York is concerned) see Advisory Opinion TSB-A-03(34)S.

    The problem is that the law doesn’t exempt the Amazon seller from collecting the sales tax just because Amazon itself is ALSO responsible. As you well note the states are choosing not to go after Amazon and go after the Amazon sellers instead.

    Additionally, there is a problem with resale certificates. In absence of a resale certificate executed within 90 days of the sale, NY will hold the seller responsible for the tax.

    Can you imagine the response from Amazon when the Amazon seller requests a resale certificate????

    1. Herschel Friedman — You say that the problem lies with the fact that the law does not exempt the Amazon seller from collecting the sales tax just because Amazon is ALSO responsible, and that the states are choosing to go after the seller instead of Amazon.

      My argument to that would be that their choice puts an undue burden on small sellers, which is not legal. Having the many sellers collect and remit is a huge financial burden and is completely nonsensical, especially when having Amazon collect would eliminate all of the problems associated with collection and remittance. I see it as a clear conflict of interest when the States continue to let Amazon lobby their way out of compliance and cater to Amazon because of the economical benefits that they will see in doing so. The states choosing to target sellers instead of Amazon is a complete joke!

  13. Your right from a ethical and practical point of view that the states should go after Amazon and not the Amazon sellers. However from a political point of view you are wrong.

    Politicians seek power to that end they prey on the powerless Amazon sellers and worship the powerful-Amazon…..

    Who do you think makes campaign contributions?

  14. You state that I am wrong from a political point of view, but you literally just agreed with me that there is a political problem (conflict of interest) and referenced Amazon’s lobbying efforts (campaign contributions).

    To suggest that nothing can be done is naive and indicative of a defeatist attitude, and frankly, I’m tired of it. Everyone that spews this nonsense needs to self-educate or stop talking.

  15. Alex and Paul, regarding your theory that Amazon is a consignee and that the states should go after AMAZON. (see my comment above about New York)
    For California that argument is not only a theory its the best defense in case of an audit!

    In California the stated policy is that a consignor must file sales tax returns but the consignee owes the tax. See below from CA BOE!

    Will I owe sales tax when someone sells an item for me on consignment?
    No, unless the sale is made through a broker (see Broker sales above). You must include your receipts from consignment sales in “total sales” on your sales and use tax return for the period in which the sale is made. You then need to deduct those consignment receipts from your total sales. List them on the return line for:

    “Sales for resale,” if the retailer has issued you a resale certificate, or
    “Other” deductions, if the retailer has not issued you a resale certificate.
    If you take the deduction on the “Other” deductions line, be sure to state that the deduction is for “consignment sales.”

    CA and NY are the most aggressive pursuers of Amazon sellers, for sales tax.

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