The days of tax-free Amazon purchases are quickly coming to an end due to a new occurrence in Amazon’s sales tax. As the holiday season approaches, there will be lots of smiles, holiday cheer and empty pockets in the last quarter of this year. If you’re buying gifts from Amazon, you’ll now have to worry about sales tax, too. That’s because new court rulings require all merchants on the world’s largest online marketplace to begin collecting taxes in exchange for partial amnesty from back taxes. This deal includes nearly half of the states in America, according to Bloomberg. ’Tis the season to be taxed!
Amazon sales tax: What’s the issue?
If you buy products from Amazon, you are likely aware of the sales tax that Amazon already calculates while finalizing checkout details. However, many products that come from third-party merchants do not require sales tax, a loophole which is heavily exploited by Amazon sellers and has even gotten the attention of President Donald Trump, who tweeted that it causes “great damage to tax-paying retailers,” according to CNBC.
The issue has gotten so big that the federal government has been dodging it for years, afraid that it may go all the way to the Supreme Court, and there’s a case that may be pertinent to the matter — Quill Corp v. North Dakota in 1992. In this case, after North Dakota attempted to impose a use tax on Quill, the Supreme Court ruled that a business must have a physical presence in a state in order to collect taxes. Amazon initially honored this ruling, but the retailer has recently started to build physical locations, including company-owned warehouses in several states. Since Quill Corp had no physical presence within the state of North Dakota, as a mail-order only business, the Supreme Court prevented the state from levying taxes on the company. However, this ruling created a loophole that Amazon was able to see through and exploit.
What is being done about it?
Amazon leaves tax collection up to the individual merchants, though it is not their responsibility. Because of this, some merchants refuse to participate in collecting their own sales tax for Amazon, which is why some Amazon products have taxes while others don’t. The problem is compounded by the sheer volume of merchants that sell through Amazon — more than 2 million sellers. Naturally, these merchants don’t feel like it is their responsibility to do the legwork in collecting and remitting the taxes for Amazon. It is a particular disadvantage for brick-and-mortar stores because they don’t have access (or budgets for access) to multiple states unless they are enterprises.
Some states saw this problem coming. In June, Minnesota required companies to collect sales tax on goods sold by third-party sellers. The ruling will be effective in 2019 for corporations such as Amazon, eBay and BestBuy. Washington has a similar law that will go into effect in January, while Massachusetts has issued a court order forcing Amazon to turn over the identities of third-party merchants selling on the site since 2012 as soon as next week. All of these requirements will be effective even sooner if the Quill ruling is overturned.
Dec. 1 is right in time for Christmas, New Years and delayed Black Friday sales. Its peak season for Amazon sales, which means cracking down on Amazon merchants’ tax payments will create more work for merchants during their busiest time, and — most importantly — raise costs during the worst time of year for consumers who are looking to save a little. Not only is it late in the game to make Amazon consumers pay extra for sales tax, but it’s also a massive inconvenience for everyone except Amazon.
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