New in the Online Sales Tax Realm: States & 3rd Party Sellers

What does online sales tax have to do with third-party sellers? This blog post explains.

If you’ve purchased from Amazon lately, you may have noticed they’ve started charging sales tax. However, many third-party merchants that sell through the website haven’t been collecting it.

In fact, research shows that despite half of online sales happening through marketplaces (a number which is expected to grow to two-thirds within five years), these sellers don’t collect sales tax – even if the retailer they work through does (such as Amazon).

States’ Efforts: Collecting Sales Tax From Third Party Sellers

Come December 1, it’s expected the states involved in the amnesty program we’ve recently discussed will begin collecting sales tax from online merchants – including those that sell through a website like Amazon.

As the Seattle Times points out, this presents an important question: “Who will be responsible for collecting and remitting the taxes when someone buys something from a third-party seller on Amazon.com? Is that Amazon’s job or the merchant’s job, or some combination?”

The answer isn’t clear to experts or even to states themselves, as each has a different solution and approach. For example:

  • Minnesota: In June the state passed legislation that requires major retailers (such as Amazon and eBay) to collect sales tax on all items sold – including those sold by third-party sellers. The law goes into effect in 2019, however it could be even sooner if the courts overturn the precedent set forth by Quill Corp v. North Dakota.
  • Washington: The state passed a similar law to Minnesota, although this one goes in to effect in January 2018.
  • Massachusetts: The state is forcing Amazon to turn over their marketplace sellers’ identities. They have a court order behind them, which former Amazon Senior Manager James Thomson foresees setting off, “A scramble among states bent on collecting back taxes.” He also says that if the state succeeds, “It’s going to be a bloodbath” as other states will likely follow suit.

It will be interesting to see how states continue in their efforts to collect sales tax from online sellers. We’ll continue to share updates, but in the meantime, please contact us if you have any questions about how this debate may affect your business. We’re happy to answer questions regarding online sales tax issues as well as other multi-state tax queries you may have!

Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects. To learn more, contact us today at www.MilesConsultingGroup.com.

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