The following is an article authored by Sovos' Matt Walsh that appeared in Total Retail in May 2017.
Over the last several months, the retail industry has closely watched what the federal government would determine to be an appropriate sales tax collection approach for remote sellers. While several bills are still pending at the federal level, Amazon.com, the granddaddy of e-commerce, just made the jump to finalize the collection and remittance of sales and use taxes in all 45 U.S. states imposing such a tax as of April 1 of this year.
Amazon is inarguably the largest online retailer, and since it also serves as a platform for other online sellers through its Fulfillment by Amazon (FBA) program, the ripple effect of such a private-sector decision will most certainly lead to significant impacts on the online retail industry as a whole. So while the federal government lingers on its taxation decisions and those pending bills, retailers with an online presence should take note of Amazon’s decision and begin preparing their operations to ensure tax compliance with all states’ imposed tax requirements. To help online retailers understand how Amazon’s decision to voluntarily collect sales and use taxes could impact their operations, let’s discuss the potential ripple effects we might see ahead.
5 Out of 50 States Do Not Currently Tax
Will Amazon now taxing in all states that collect sales and use taxes be enough momentum to push the five states that do not tax — Alaska, Montana, New Hampshire, Delaware and Oregon — to adopt a sales taxes? Not likely. While the remote selling taxation issue has largely come about from states looking to increase their tax revenue collections in this era of e-commerce adoption, these non-taxed states haven’t indicated a desire to revise their long-standing positions on sales taxes.
Retailers Using Amazon’s Fulfillment Platform
Amazon’s decision is in fact an agreement between the online retailer and the individual states, so this new protocol would apply to all products sold through Amazon directly. Retailers using Amazon’s Fulfillment by Amazon (FBA) service will need to collect tax wherever their products are stored in an Amazon warehouse. However, part of Amazon’s strategy has been to open warehouses across the country to facilitate quicker delivery. This certainly impacts sellers using the FBA program, as some sales may be impacted by this new tax compliance requirement, which could incent buyers to look for nontaxed alternatives. Sellers using FBA have a new cost/benefit analysis to run: Is collecting tax in more locations a good tradeoff for faster delivery times? Will compliance with sales tax rules negatively impact their margins, or will faster delivery offset those costs?
The truth is that as Amazon continues to open warehouses across the country, retailers leveraging FBA will be affected by this change. They will be required to address the tax compliance issue very soon anyway, based on existing brick-and-mortar nexus rules.
Read the entire article here.
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.
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