Do Amazon Third Party Sellers Have A Tax Problem?
Amazon sellers have the opportunity to join the MTC Online Marketplace Seller Voluntary Disclosure Initiative. Failure could lead to Amazon losing a large part of their business.
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Amazon has grown to become a large part of US e commerce. In the last 12 months, marketplace sellers have become a more important part for Amazon as sales from third party sellers have consistently been growing. According to Statista, in the last 10 years Amazon’s Percentage of paid units sold by third-party sellers on Amazon platform has nearly doubled (26% to 51% in Q2 2017).
Amazon decided to allow third parties to sell on Amazon as a means to ensure that they can gain access to products and content that they themselves don't sell. This ensured that they have a greater selection for customers. This was a historic decision that would change Amazon’s business and also ensure that in the future these marketplace sellers would face legislative changes by themselves.
Amazon has been clear to state that they are not responsible for products sold on their marketplace nor are they liable for the collection of sales tax by their third party merchants.
The Problem For Amazon
Amazon has ensured that marketplace sellers power future growth and without these sellers Amazon is at risk of losing sales and revenue. In saying that, the Amazon.com tax collection story is almost 20 years old and contains complexities that have not been followed with improved State and Federal tax law.
Amazon provides sellers with the opportunity to collect sales tax on their behalf. This may seem to be noble but this is also a revenue channel for Amazon as they charge sellers a fee of 2.9% of the sales tax collected.
Amazon creates a challenge for sellers who use their Fulfillment by Amazon (FBA) program as when they distribute products to Amazon Fulfillment centers, sellers are unknowingly able to reach Tax Nexus based on sales in various States.
Does Amazon do enough regarding Tax collection
I believe that Amazon can be doing more to publicize their cooperation with States in ensuring that their marketplace sellers join the MTC Tax Amnesty program. If sellers do not use this opportunity to take the amnesty provided by 24 States the potential costs of back taxes could lead to third party sellers having to leave Amazon or close their businesses.
Amazon doesn't invest in educational services to help sellers run their businesses correctly and be seen as tax advisors, which would lead to challenges on the role that Amazon plays in collecting sales tax in US States. The irony is that Amazon does sell tax services to marketplace sellers.
South Carolina could show the future
In June, South Carolina filed a complaint alleging that Amazon failed to collect taxes on sales made by third-party merchants on the company's marketplace for the first 3 months of 2016.
The products sold during the first 3 month of 2016 was by third party sellers and not Amazon (connecting other businesses to consumers and providing the payment processing for the transaction as well as some customer support). This is clearly aimed at Amazon’s third party marketplace.
As US States become aware of the impact of Amazon’s business to customers who live in these respective States, we will continue to see legal cases in which Amazon is seen as a connector between customers and a seller. The reality is that these third party sellers don’t own the customer and cannot contact the customer but rather Amazon is the central business which is gaining sales and revenue .
Please note: This post is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time and require professionals for proper assistance.