Amazon owes South Carolina taxes on third-party marketplace sales, the state’s administrative law court ruled.
More than two years ago, Amazon Services LLC challenged a $12.5 million assessment the state Department of Revenue issued for uncollected taxes, penalties, and interest from third-party sales covering the first three months of 2016. In a Sept. 10 order, the South Carolina Administrative Law Court sided with the department, finding that the online retailer owes the taxes at issue.
The decision has the 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.
In its ruling, the administrative law judge acknowledged discussions had taken place over statutory authority, but said it was the court’s place to interpret the law as it stood. South Carolina enacted a law in April that clarified marketplace collection authority.
The court decided that Amazon “is not just facilitating sales, it is consummating them.” Amazon was in the business of selling, had control of the marketplace and therefore is responsible for the sales taxes on third-party sales, the court said.
There are other businesses with online marketplaces but the court said there was no evidence that the state revenue department “purposefully singled-out Amazon Services to intentionally discriminate against them with the imposition of the tax.”
The state Department of Revenue is to determine whether any merchants using Amazon had already remitted taxes and must calculate the actual amount of taxes, penalties, and interest now due.
Broader Impacts Seen
“I would have been surprised if the outcome would have been different,” Richard Handel, a tax law professor at the University of South Carolina and former general counsel for the DOR, said.
Handel said that he believes the ruling has broader impact than the company and the time frame it considered. He told Bloomberg Tax that the decision likely applies to other third-party sales on Amazon or different retailers’ marketplaces that are still open under the statute of limitations.
Bonnie Swingle, a spokeswoman for the Revenue Department, said the department thinks the holding applies not only to the three-month period at issue but also to sales made through Amazon’s marketplace during subsequent tax periods. The decision also applies to any other online retailer like Amazon, she said.
For its part, Amazon said the decision “is inconsistent with the facts established at trial and the applicable law.” The company said it “has long supported marketplace laws like the one South Carolina passed in April because they provide essential fairness for all sellers and marketplaces, more revenue for states and a simplified administration of the sales tax.”
Jill Kerr, a spokeswoman for Amazon, told Bloomberg Tax that the company had not yet decided whether to appeal the ruling.
The case is Amazon Services LLC v. S.C. Dept. of Revenue, No. 17-ALJ-17-0238-CC, 9/10/19.
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(Updated with Department of Revenue, Amazon, and other comments.)