Amazon began collecting sales tax on items it sells in Georgia four years ago after a push from state lawmakers. Now, state leaders in Georgia and throughout the country are setting their sights on the mega-retailer again — this time, to collect taxes from the third-party merchants that sell through its site.
The extra tax dollars would be a boon to state governments, but would end up costing online shoppers more.
The third-party retailers, called marketplace sellers, use Amazon to sell, hold and ship their products. But Amazon doesn’t collect sales tax on behalf of those companies, and many of them don’t collect taxes themselves.
Arguing they are losing millions of dollars in tax revenue, states are starting to take action — even as some of them are also trying to lure Amazon’s second headquarters, HQ2, with tax incentives and other inducements.
Washington will start receiving more sales tax money in January after passing a law earlier this year requiring Amazon to collect those taxes itself on the sellers’ behalf. Massachusetts successfully sued for access to a list of sellers that have items warehoused in the state. And South Carolina sued Amazon this summer, saying the company was required to collect taxes for marketplace sellers and owed more than $12 million in taxes for just the first three months of 2016.
James Thomson — the former business head of Amazon Services, which recruits marketplace sellers — said Georgia “almost certainly” already has the legal authority to demand sellers that have at any point had items warehoused in the state pay taxes here.
“There’s this massive sales tax liability that most sellers are ignoring,” he said.
Most sellers that aren’t charging sales tax rely on Georgia consumers to report their tax-free purchases, as the law has long required, and to pay the taxes they still owe by filling out state forms. It’s called a “use” tax, but shoppers rarely fill out the forms or pay. Online retailers push back against collecting sales tax themselves partly in an effort to keep their prices competitive.
Legislation has already passed the Georgia House that would increase sales tax collections on online sales in the state if it becomes law, but it still must be passed by the Senate and approved by the governor. And Rep. Jay Powell, R-Camilla, said he is working on additional legislation that could force Amazon to collect taxes on behalf of its third-party sellers, instead of leaving it to those sellers to collect themselves.
“If we can pass legislation requiring (Amazon) to pay, we want to do that,” said Powell, chair of the House Ways and Means committee. “They claim it’s a bookkeeping nightmare, but that’s not true.”
Who is required to charge sales tax for online sales comes down to one concept: physical presence. A 1992 Supreme Court ruling said if a company had a physical presence in a state, like a store or a warehouse, it had to charge consumers the sales taxes levied by that state. If not, there was no requirement.
But for businesses that send their goods to Amazon to ship, having their inventory stored in a state — even for a day — could be enough to require them to collect and pay sales tax there.
Powell’s proposed legislation, which passed the House this year, calls for a new taxing requirement. Instead of requiring a physical presence, he wants to create an economic presence. The bill would require tax collections for businesses that have more than 200 transactions in Georgia, or those that made more than $250,000 in sales in the state the previous year, regardless of where they are physically located.
Sellers would be required to collect the tax, or to send Georgia buyers a notice saying that they owe it and must pay.
“The market is changing,” Powell said. “The way we tax things is not.”
In order to collect any back taxes that the state argues are owed under existing law, the Georgia Department of Revenue would have to track down Amazon’s marketplace sellers that have stored inventory in the state. Thomson warned it would have to happen quickly: Sellers that haven’t paid taxes in multiple states are likely to run out of money before they’re able to pay all that they owe, he said.
That’s one reason, he said, Washington decided to forgo past sales tax collections in favor of simply requiring Amazon to collect in the future. But he said states that do go after back taxes have the opportunity to collect quite a bit.
The hit from unpaid taxes is “big enough that it warrants the Department of Revenue sending auditors,” Thomson said. “It doesn’t take long for it to be a couple hundred million dollars.”
A Georgia State University report said the state had lost an estimated $204 million in tax revenue in 2016 from all out-of-state online sellers. That number was expected to grow by 8 percent a year until 2022.
Jill Kerr, an Amazon spokeswoman, declined to comment on the issue of tax collection on the record.
Georgia retailers are in favor of changes that require all online sales to be taxed, Powell said. James Miller, a spokesman for Georgia Retailers, said his organization just wants “equity” among all sellers.
Two dozen states, in the hopes of getting sellers to voluntarily start paying sales tax, offered amnesty programs that would free them from having to pay some or all of the back taxes owed. Georgia wasn’t one of the participating states, but the number of sellers that signed up for the program, organized by the Multistate Tax Commission, was paltry — only 852 of more than 40,000 sellers that use Amazon for fulfillment of their orders.
Richard Cram, the director of that program, said he suspects more legislation will be written nationwide to force the issue.
He also said the company “probably wouldn’t be afraid” to use its headquarters search “as a way to discourage states from pressing them.” Thomson, though, doesn’t think the two are related. He said long-term growth and access to talent is more important to Amazon than the tax issue.
Stefanie Harper, at the Georgia Department of Economic Development, said the department doesn’t comment on active projects and “we’re not commenting on anything related to Amazon.”