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State of Wayfair: Amazon Pushes Back in South Carolina Tax Fight

Oct. 16, 2019, 6:08 PM

Amazon isn’t waving a white flag just yet in a battle with South Carolina.

Amazon Services LLC, the division of the e-commerce giant that manages its marketplace, has appealed the South Carolina Administrative Law Court’s ruling that Amazon owes taxes to the Palmetto State for third-party marketplace sales.

In a Sept. 10 order, the South Carolina Administrative Law Court sided with the South Carolina Department of Revenue, finding that the online retailer owed $12.5 million in uncollected taxes, penalties, and interest from third-party sales covering the first three months of 2016.

In Amazon’s latest SEC quarterly filing, the company signaled it intended to “defend ourselves vigorously in this matter.”

“South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers. We believe the assessment is without merit, the company said in the filing. “If South Carolina or other states were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax liabilities.”

The September 10 decision has potential to affect more Amazon transactions than those before the court as well as sales made through other online retailers.

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

South Carolina’s Department of Revenue cited existing authority to require remote sellers to collect following the 2018 South Dakota v. Wayfair Supreme Court decision. Those requirements kicked in Nov. 1, 2018.

The Wayfair ruling tossed out the court’s 1992 physical presence standard established in Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster.

Since the Wayfair ruling, a majority of states have passed versions of South Dakota’s law or have enforced existing economic threshold laws and rules they already had on the books. Many states have also begun imposing duties on marketplace facilitators that handle third-party sales, like Amazon.com Inc. and Etsy Inc.

Florida Bill Advances

A Florida proposal to require remote sellers and marketplace providers to collect and remit sales tax was unanimously approved by the Senate Commerce and Tourism Committee on Oct. 15.

S.B. 126, which Sen. Joe Gruters (R) pre-filed for the 2020 session, would require collection by out-of-state sellers with annual sales of more than $100,000 or at least 200 separate transactions into Florida.

A similar bill proposed in Florida’s 2019 session was estimated to yield over $700 million annually in new state and local tax revenue, according to a legislative staff analysis.

Florida is one of the last states that has not enacted a remote seller law.

—With assistance from Andrew Ballard in Raleigh, N.C.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com