13 Nov Massachusetts and the Recent Pivot on Amazon Third-Party Sales Tax
The recent mass email from Amazon informing the FBA community that Amazon will comply with the subpoena issued by the MA DOR re: demand for all FBA records relating to Amazon’s DC in the state should come as no surprise. Over the last 2 years, several state Departments of Revenue have initiated special compliance programs aimed specifically at FBA e-tailers with CA leading the way. In our conversations with the CA BOE executive leadership, the BOE was “going to identify every FBA with inventory in the state” and bring the industry into compliance. Other states began “desk audit” programs well before the beginning of 2017 with the common goal of full compliance by the FBA community. All of these programs were initiated without a demand or subpoena issued to Amazon for FBA inventory information. While the story broke about MA suing Amazon to produce the FBA records on 9/26/17, anyone who has sufficient experience dealing with state Departments of Revenue knows that the initial request for information would have taken place months ago. Every state has in its laws the ability to demand books and records related to a taxpayer’s operations within its state. A state does not issue a subpoena with its first, second, or even possible its third records request (each request has a stated time period, i.e. 10, 15, 20 or 30 days in which the taxpayer must produce). Subpoenas are issued only after a taxpayer has either ignored the multiple requests or has answered negatively in the affirmative to each production request.
As a result of Amazon’s compliance with MA, each FBA should review their records and document exactly when owned-inventory was sent to Amazon’s MA DC. This is exceptionally critical as sales made to customers inside MA before the date of first inventory should not be assessed sales tax; only sales made on that date forward (all sales to MA, not just sales where product was delivered from the MA DC to a MA-based customer). Securing the detail sales and inventory documentation also prevents MA from “projecting” liability due to missing/incomplete records. Finally, as Amazon advised in its email this week, each FBA should contact their tax professional (or secure subject matter experts in sales tax) to discuss their specific circumstances.
The FBA community must now face the possibility that every state will demand FBA inventory information, for states where Amazon has an existing DC, or FBA sales information in every other state (as Amazon is registered for sales/use tax in all 46 states and Washington D.C. that have an indirect transactional tax regime and as such, would be subject to that jurisdiction’s rules regarding production of documentation). MA was the first, but it will certainly not be the last state to use Amazon’s data to identify FBAs.”