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Amazon Faces a South Carolina Use Tax Battle With Huge Implications

Amazon faces a South Carolina use tax battle with huge implications for the multinational corporation and all firms and individuals who conduct business on the internet.  The key question in the dispute is the collection of sales tax or “use tax” on sales made by third party merchants on Amazon’s marketplace.  The transactions in question do not involve those where Amazon itself is the seller, but on businesses and individuals who sell products through the company.  It is important that Amazon is provides the service of payment processing in these transactions (and some customer support).

South Carolina’s claim is based upon Q1 of 2016 and asserts Amazon owes the state $12.5 million in “taxes, penalties and interest” which “will continue to accrue until this matter is resolved.”  South Carolina asserts in its complaint that Amazon is responsible for collecting taxes on behalf of their vendors who use the Amazon marketplace to sell products to South Carolina residents.  The taxation of internet transactions is a constant issue for all states and California’s BOE and other state agencies are closely monitoring this developing situation in hopes to open similar complaints which would amount to a substantial financial liability for the multinational marketing powerhouse.

In its most recent quarterly report,  Amazon states “we believe the assessment is without merit.”  “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,” Amazon said. “We intend to defend ourselves vigorously in this matter.”

Amazon’s position is that the seller is responsible for collecting the taxes.  South Carolina’s position is Amazon is considered the “seller” and liable for the tax as it controls a substantial portion of the third-party transactions completed on its site.

While Amazon faces a South Carolina use tax battle many California companies will face similar challenges in the coming months.  Allen Barron is uniquely positioned to represent California individuals and businesses in sales tax audits, use tax and other tax issues and litigation associated with California’s tax agencies.  Our integrated tax, legal, accounting and business advisory services provide a single-source integrated solution which provides a much deeper perspective for our clients based upon the various aspects of any business or tax challenge.  We invite you to contact us for a free consultation at 866-631-3470.