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Amazon’s Fight Against South Carolina’s Online Sales Tax Delayed

Oct. 9, 2018, 9:57 PM

South Carolina will have to wait at least a few months longer to press its case to collect money from Amazon on third-party marketplace sales.

Amazon Services LLC has challenged a $12.5 million assessment the state Department of Revenue issued in June 2017 for uncollected taxes, penalties, and interest from third-party sales. In December 2017, the court denied the DOR’s request to force collections while the parties battle over the issue.

The resolution in South Carolina continues to be delayed even as the retail giant has been collecting for other states. Bonnie Swingle, a spokeswoman for the department, told Bloomberg Tax a hearing in the matter before the state administrative law court scheduled for November will now be shifted to the first week in February 2019.

Amazon began collecting sales tax for South Carolina on Jan. 1, 2016, after a five-year “safe harbor” on such assessments expired. But it is fighting the state over third-party collections even though it has agreed to do so in other jurisdictions.

The issue of taxing third-party sellers raises certain concerns about small vendors who use or another provider such as Ebay Inc. or Etsy Inc. to sell their goods or services, Bruce Ely, a tax lawyer and partner at Bradley Arant Boult Cummings LLP in Birmingham, Ala., told Bloomberg Tax Oct. 9.

“Will the states apply their sales thresholds to each and every vendor who uses a marketplace provider?” Or, “will the states apply the threshold at the provider level, which will very likely trigger a collection responsibility for all the small vendors?” Ely said.

Amazon the Seller?

South Carolina is basing its authority to collect on a claim that Amazon itself is the retailer of products sold on its website and therefore is obligated to collect sales tax on every transaction. Amazon argues that the department is improperly trying to shift the responsibility of collecting taxes onto the company.

Taxation of third-party marketplace sellers is an area of increasing focus after the recent U.S. Supreme Court ruling in Wayfair, as they represent more than half of online transactions.

The U.S. Supreme Court’s June 21 ruling in South Dakota v. Wayfair tossed out a 26-year old physical presence standard for when states could tax remote sales. The majority in the 5-4 decision suggested strongly that South Dakota’s law—which requires remote sellers with $100,000 in annual sales or 200 annual transactions to collect and remit sales tax—would pass constitutional muster.

Following the ruling, dozens of states enacted new laws or enforced existing ones to collect sales taxes on remote sales. Similar laws or rules are now in effect in 18 states, and collection requirements in several others will kick in later this year.

Most states have imposed the same thresholds as South Dakota, but variations exist.

Collecting Elsewhere

Amazon already collects and remits sales taxes in states with marketplace facilitator laws in place such as Minnesota, Oklahoma, Pennsylvania, and Washington.

Amazon representatives declined to comment on the issue, citing pending litigation.

Swingle wasn’t immediately able to say why the hearing had been postponed.

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C., at

To contact the editor responsible for this story: Ryan C. Tuck at