Amazon sales tax is now collected and paid by the marketplace in Washington state. A new law demands that online selling platforms and stores have a responsibility with regard to paying dues or informing customers and the government about them. Amazon sales tax doesn’t have to be collected by the marketplace itself, but Amazon is choosing to take initiative. Sellers aren’t technically off the hook, but the details are being taken care of by the marketplace. This is only the first state law on Amazon sales tax, but it should be smooth sailing once marketplace systems are in place.
The Marketplace Facilitator Law
The Marketplace Facilitator Law basically states that marketplace facilitators, remote sellers, and referrers selling their own goods online have one of two choices. These parties can either collect and pay seller sales tax, or post notices and report dues to customers and the government. Sellers don’t often collect Amazon sales tax on their items. The competition doesn’t, and they fear that adding it on would discourage purchases.
Fortunately, sellers have a choice under the new law. They can opt to notify customers that Amazon sales tax is due on items purchased in or from Washington. In this case, the fact that Amazon sales tax is due must be clearly indicated on the selling platform, on invoices, order forms and receipts, in a report on a customer’s annual purchases, and in a similar report to the Department of Revenue.
Collecting and paying Amazon sales tax might look like the less appealing option. The reporting procedure is quite complex, however. There are four different notices / reports, each with several requirements. Sellers will undoubtedly find it wearisome to generate and deliver all of these for each customer living in Washington or buying products from Washington.
Why Amazon Stepped In
Under the Marketplace Facilitator Law, Amazon sales tax must either be paid or reported. Because it states that the marketplace itself and not just sellers have this responsibility, Amazon has taken the initiative to comply. Amazon is headquartered in Washington state, has more than $10,000 in retail sales sourced there, both from its own product sales and that of marketplace seller. The law therefore applies to them in all respects.
It therefore makes much more sense for the website to post the appropriate Amazon sales tax notice. Otherwise, each store – or worse, each product page – would have to display the information on what tax is due where and who has to pay it. This would ruin the user experience and be very damaging to the marketplace. Amazon is customer-centric, and will always do what gives the customer the best experience. Taking care of Amazon sales tax is the best choice with regard to the customer.
Effective January 1, 2018, the marketplace began collecting Amazon sales tax from Washington customers of the 3rd party sellers listing there. The good news for sellers is that this means they don’t have to worry about dealing with sales tax nexus at all. This includes not having to pay additional Amazon fees for the automatic tax collection service. Yes, sellers still need sales tax permits, sales taxes still have to be paid, and sellers will have to figure out how to deal with any pricing challenges they face as a result. But all sellers are in the same boat. At least they don’t have to deal with Amazon sales tax every time they make a sale and every year for as long as they keep selling.
Will Amazon Sales Tax Spread?
The Marketplace Facilitator Law currently only applies to Washington state. We expect that it won’t be long, however, before the marketplace will eventually start processing Amazon sales tax throughout the country. Taxes are one of Ben Franklin’s two certainties in life, and it also makes sense that Amazon would now prepare to take it on across the board.
The nexus is complicated and much more easily avoided than dealt with. Online sellers have gotten away with ignoring Amazon sales tax, but the United States can’t be as unmindful. The states are losing out on billions of dollars in revenue from online purchases that aren’t being taxed. Amazon has been called to answer to the Department of Revenue as a marketplace that facilitates a significant number of online sales. With such easy compliance agreed to by the top sales platform in the country, we can be sure to see more state tax laws passed to focus on getting dues from eCommerce transactions.
Amazon calls Washington state its home, so it really couldn’t expect to wiggle out of facing this tax music. The marketplace also offers a lot of services to its 3rd part sellers outside of Washington that still fall under the law by virtue of the sourcing aspect. Listing is the big one – every seller lists on Amazon. There’s also payment processing, fulfillment, storage, setting prices, branding sales, taking orders, advertising and promotion, customer service and accepting or assisting with returns or exchanges. As this online tax law is adopted by more states, the marketplace will do better to simply get Amazon sales tax paid.
What Do I Do Now?
As a seller, you need to prepare to have Amazon sales tax charged to at least a small portion of your customers to start. That is, if you are selling on channels outside of Amazon. Consider this scenario: You have inventory stored by Amazon in Washington that you are selling through your own website or a platform other than Amazon. As such, you may still have nexus in Washington for sales made to customers on sales channels outside Amazon. You may also still be required to pay business and occupation tax. Moreover, you may still have to collect and pay back taxes for purchases made before the law went into effect.
There are still a lot of unknowns that the tax experts are working out with Washington state. Best practice so far suggests that you collect and pay all applicable Washington sales tax in the meantime. Consult with an accountant on what your next move should be. Once the details are sorted out, we expect other states to move in a similar fashion, so you should prepare to be compliant to avoid violations and their corresponding penalties.