Amazon sellers will now have to collect and remit sales tax in every state in which it is required. What are the business implications? Amazon completed its 180-degree turn on sales tax policy this week, agreeing to voluntarily collect sales and use tax in every state that imposes such requirements. While this development does not represent a change in any existing sales tax laws, the move is significant in that it signals the ecommerce giant has officially given up on its fight with states. But why would Amazon about-face so abruptly? And what does it mean for the thousands of sellers who use the platform? While the company has offered little explanation about its decision, it is likely a result of two colliding forces: Consumer demand for faster shipping and an increasingly aggressive regulatory environment in remote sales tax.
Consumer demand for faster delivery = more physical presence.As online shopping continues its explosive growth, customer expectations have also evolved. Amazon has created the expectation among many online shoppers that one-day and two-day deliveries are standard. The time consumers are willing to wait for their purchases has shrunk from days to hours. To compete, businesses with both online and brick-and-mortar locations are upping the ante with in-store pick-up and same-day delivery. That demand for faster shipping has driven changes in Amazon’s value proposition, focusing on delivering purchases closer and closer to real time, which requires a wider net of distribution centers across the country. With that broader footprint, Amazon’s e-commerce model is inching closer, in compliance terms, to a brick-and-mortar model where Amazon and its FBA sellers will have nexus in every state. As a result, sales tax compliance, which has long been something online businesses tried to minimize, is quickly becoming a necessary part of enabling business growth.
The battle to decide remote sales tax regulations is heating up. Amazon is giving up.In recent years, states have focused on capturing more remote tax revenue that has long been a loophole in the system. From affiliate nexus rules to more recent economic nexus laws, states have made significant changes to require more and more sellers to collect and remit tax. In fact, many of these laws were written specifically to capture sales by and through the Amazon platform and are often referred to as “Amazon laws.” In addition, there are several bills pending in Congress that would allow states to collect tax on remote sales. It is widely believed that the current physical presence standard will go away in the near future. So, it’s likely Amazon has decided to stop fighting the collection obligation imposed by these changing laws — and pending federal legislation — simply because it’s a losing battle and a distraction from more important initiatives.
What should businesses take away from all this?While Amazon’s decision doesn’t mean its sellers need to change their own tax collection policies, it might be time to look at those policies to make sure they are in alignment with the demands of the market and the rapidly evolving regulatory environment over the next few years. Here are three things to consider:
- Research has suggested assortment and convenience are quickly overcoming price as a key driver for online purchases. Take time to consider what your customers value most, reduced tax rates on sales or the convenience of fast delivery and look at your business to decide which is more important for your strategy and growth goals.
- If you use a fulfillment model like FBA, know where your products are being stored and closely monitor as they open new warehouses. There are software platforms offered by Sovos and others that allow businesses to monitor their inventory distribution. These cloud platforms are easy to implement and readily adaptable to keep you in compliance as your needs and the regulatory environment evolve.
- Monitor the remote seller legislation at both state and federal levels to keep track of changes in your collection obligations — including several new remote sales tax laws in 2017 — as they emerge.
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About the Author
.Matt Walsh is the Principal of Indirect Tax. Matt and his department ensure that all Sovos tax and reporting solutions are compliant with global indirect tax laws. He also provides strategic direction, guidance and recommendations for product enhancements and development. Matt is also focused on fostering and managing government and industry relationships.Matt has over 17 years of experience in compliance, including starting as a tax counsel in the tax department and then advancing from Manager to Director of Tax Research and from there to Senior Director of Tax to his present position. He also was formerly a Team Manager at John Hancock Financial Services. Matt is currently a member of the Technical Advisory Group of the OECD (Working Party #9), which drafts model legislation and implementation guidelines for the taxation of cross-border services.Matt has a BS in Business Administration from the MA College of Liberal Arts as well as a JD from the New England School of Law.More Content by Matt Walsh