What is the basis of the tax dispute between Amazon and the South Carolina Department of Revenue?

The dispute centers on a $12.5 million tax assessment issued by the South Carolina Department of Revenue (DOR) against Amazon for uncollected sales taxes, penalties, and interest related to third-party sales made through Amazon's platform in the first quarter of 2016. The DOR contends that Amazon was responsible for collecting and remitting sales tax on these transactions.

Why does Amazon oppose the tax assessment?

Amazon argues that it should not be held liable for collecting sales tax on third-party sales conducted through its platform prior to the enactment of South Carolina's Marketplace Facilitator Law in 2019. The company maintains that retroactively applying this law to transactions from 2016 is unjust and that, at that time, it functioned merely as a service provider for third-party sellers, not as the actual retailer.

What was the ruling of the South Carolina Court of Appeals regarding this case?

The South Carolina Court of Appeals upheld the DOR's assessment, determining that under the laws effective in 2016, Amazon was engaged in retail sales and thus responsible for collecting and remitting sales tax on third-party transactions. The court found that Amazon's physical presence in the state established sufficient nexus to impose tax collection duties.

How has Amazon responded to the Court of Appeals' decision?

Amazon has challenged the Court of Appeals' decision by appealing to the South Carolina Supreme Court. In its appeal, Amazon argues that the decision improperly expands the authority of state tax enforcement and undermines taxpayer protections. The company also asserts that payments for third-party sales were processed through Amazon Payments Inc., indicating that Amazon Services merely held funds temporarily on behalf of sellers.

What are the potential implications of the South Carolina Supreme Court's forthcoming decision?

The Supreme Court's ruling will determine Amazon's liability for the disputed tax assessment. Beyond this case, the decision could set a precedent affecting other marketplace facilitators regarding their tax collection responsibilities, especially concerning the retroactive application of tax laws. A ruling in favor of the DOR may lead to increased tax obligations for similar platforms operating under comparable circumstances.

How do Marketplace Facilitator Laws impact online platforms like Amazon?

Marketplace Facilitator Laws require platforms that facilitate sales for third-party sellers to collect and remit sales taxes on behalf of those sellers. These laws aim to streamline tax collection and ensure compliance across e-commerce transactions. For platforms like Amazon, such laws impose additional responsibilities to manage tax compliance for sales made through their marketplaces.

Amazon Disputes $12.5M Tax Assessment in South Carolina Supreme Court

The South Carolina Supreme Court will settle the dispute between Amazon and the South Carolina Department of Revenue (DOR) regarding DOR retroactively applying the 2019 Marketplace Facilitator Law for assessing the tax on third-party sales made through Amazon in Q1 of 2016.

Amazon opposes the retroactive application and tax assessment on the 2016 Q1 sales, and all imposed penalties and interests on the uncollected and unremitted taxes.

Background of the Case

Following the Wayfair Decision, South Carolina implemented a Marketplace Facilitator Law in 2019. Under the provision of the Marketplace Facilitator Law, the DOR issued a tax assessment by retroactively applying the marketplace facilitator rules, stating that Amazon must pay USD 12.5 million for due sales tax, penalties, and interest.

The retroactive application was only for third-party sales made in the first quarter of 2016, for which the DOR stated that Amazon was liable to collect and remit sales tax.

Amazon argued that the 2019 Marketplace Facilitator Laws could not be retroactively applied to services provided before the Law was enacted. In addition, Amazon stated that it should not be considered liable for collecting sales tax because it was not the actual seller of the products but merely provided a service to third-party sellers.

In its ruling, the South Carolina Court of Appeals stated that Amazon is liable for sales tax under the laws in effect at that time, especially those that define rules and regulations for physical presence in the state.

Amazon challenged this decision, and the case was referred to the South Carolina Supreme Court to make its decision and settle the dispute. In its appeal, Amazon stated that the appealed decision shifts power to state tax enforcement authorities, thus weakening the protection of the taxpayers. Moreover, Amazon noted that the sales were sent to Amazon Payments Inc., not Amazon Services. Therefore, Amazon only temporarily held the payments on behalf of the third-party sellers as part of the services that it provides to those third-party sellers.

Conclusion

The legal battle between Amazon and the Department of Revenue is entering a new phase. The Supreme Court will give its final word regarding the dispute. The outcome of this case will first affect Amazon's sales tax liability.

However, this case's tax implications might also affect other marketplaces that fall under the scope of the Marketplace Facilitator Laws. Therefore, the Supreme Court decision will be awaited with great impatience.

Source: Bloomberg, TaxNotes