2018 is shaping up to be a year when the battle around interstate sales tax may turn in favor of states.
For a long time, a 1992 Supreme Court case Quill Corp. v. North Dakota (“Quill”) effectively defined that sellers without substantial nexus, mostly meaning offices, warehouses, or sales staff, in a state were not required to collect sales tax.
For example, a seller in Florida only had to collect, report, and submit sales tax to the state of Florida on shipments to Florida addresses. There was no legal obligation to do the same for any other state to which that seller may shipped products.
eCommerce, Technology, and Amazon Change the Dynamic
As eCommerce continued to grow and states noticed a further reduction in sales tax collections, state revenue collectors kept looking for more ways to enforce existing use tax laws or change collection requirements.
In 2015, a case before the Supreme Court, DMA v. Brohl, did not redefine Quill but opened up a crack in Quill. Justice Anthony M. Kennedy said in his concurring opinion the court should “reexamine” Quill as that decision was “questionable even when decided,” and is “now inflicting extreme harm and unfairness on the states.”
Justice Neil Gorsuch also voiced skepticism about Quill as a then appeals court judge, describing it as having created “a sort of judicially sponsored tax shelter.”
With Amazon’s fulfillment network of warehouses in well over half of states in the union and an ever-increasing threat to state coffers from interstate eCommerce activities, state legislatures began introducing new laws to try to collect sales tax.
States, for the most part, pinned their hope that a legal challenge would eventually make its way to the Supreme Court. And earlier in the year, South Dakota v. Wayfair was selected by the high court for an April hearing that takes another look at Quill.
In the meantime, some states passed marketplace facilitator laws aimed explicitly at marketplaces such as Amazon that operate fulfillment centers. And already Amazon is cooperating with Washington State and Pennsylvania new laws making the marketplace responsible for collecting sales tax on behalf of third-party marketplace sellers.
But other states have been asking Amazon about inventory at its fulfillment warehouses to try to tie marketplace sellers inventory to nexus to contact sellers about sales into their states.
Some of this activity appears to be in preparation for a favorable ruling in the South Dakota v. Wayfair that may go beyond the new marketplace facilitators laws.
There is a lot at stake for states as the Government Accountability Office issued a report last December that quantified possible revenue gains for states should laws change expanding their ability to collect sales tax from remote sellers.
According to the GAO report, states stand to gain between $8 – $13 billion annually from improved enforcement in sales tax collection.
Amazon FBA Inventory
Because Amazon’s fulfillment network of warehouses is highly efficient in load balancing inventory to strategic locations to reduce shipping times to customers. The flexibility of the logistics system provides a unique challenge to third-party sellers.
Manually keeping track of inventory movement that may eventually tie a seller to have nexus in a state and require sales tax collection or reporting is time consuming and potentially fraught with errors.
Errors in tracking inventory in the Amazon FBA network could lead to sales tax compliance risks and expose sellers to unforeseen tax implications and audits.
Avalara to The Rescue
A new Amazon FBA Inventory Report by Avalara provides monthly updates and a more accurate view of fulfillment activities, which in turn minimizes audit risk for third-party Amazon marketplace sellers.
Specifically the FBA Inventory Report allows sellers to:
- View exact inventory locations within the network for FBA fulfillment centers, including the date of when inventory first appeared in a center and address of each center.
- View the dollar value of monthly sales fulfilled from each center.
- View state-level summaries to support nexus determination.
- Determine if it meets thresholds that would require registration and compliance in each state.
- View ongoing monthly updates as Amazon adds new fulfillment centers.
The new Amazon FBA Inventory Report is available now as a part of Avalara TrustFile, a solution for preparing, filing, and remitting sales tax.
“Pulling my FBA inventory allocation details directly from Amazon is a massive pain. TrustFile’s report provides in-depth details on my inventory storage locations by month, as well as gross sales, number of orders, item numbers and tax collected. It gives me everything I need to know about my inventory in one place.”
Stan Stemp, CEO of Jolity Inc.
As states are now hopeful that the Supreme Court this year will give them the compliance powers to enforces sales tax collection on interstate shipments, especially Amazon FBA sellers need to prepare for that day.
With an April Supreme Court hearing of South Dakota v. Wayfair and a possible June decision in the case, this is a good time to become familiar with options to be compliant with what is likely going to be a changing landscape in sales tax collection.
Avalara offers a 30-day free trial for new users of TrustFile, which includes the new Amazon FBA inventory report.
Do you have a plan yet for dealing with potential new sales tax collection and reporting requirements? Head over to our Facebook Discussion Group or use the comments section below.