By Ned A. Lenhart, MBA CPA
Amazon.com began voluntarily collecting the Utah sales tax on January 1, 2017 on sales shipped to Utah customers. Amazon does not have any location in Utah, so the decision to collect seems to be based on other economic and legal issues. Previously, Amazon.com collected sales tax only in states where it has warehouses or other physical locations. These locations create the physical presence needed for the states to legally compel Amazon to collect their sales tax. On April 1, 2017, Amazon began collecting tax in about 20 additional states even though it does not have nexus in those states.
For the months of January and February 2017, the state of Utah reported an increase of $88 million in taxable revenue from ‘non-store retailers’. This is a 122% increase in taxable revenue from this same category over the same period in 2016. The state cannot release how much of this is related to Amazon beginning to collect tax, but I’m will to bet that almost all of it is related to Amazon. This is an increase in sales tax revenue collections of $4.14 million. If this collection trend continues for the rest of 2017, Utah will pick up an additional $25 million of sales tax revenue without having to lift a finger or change the law.
It was rumored that the Utah legislature had offered Amazon a vendor collection discount of 18% if it voluntarily agreed to collect the tax. Amazon declined this very sweet deal and agreed to use the 1.3% vendor discount offered to all other retailers.
As sales tax collections for April start coming in during May and June, I suspect that the states where Amazon recently began collecting sales tax will also experience some nice boost. Because Amazon does not have nexus in any of these additional states, the taxable revenue reported relates only to sales made by Amazon and not by any of the third-party sellers that participate in the Fulfillment by Amazon (FBA) program.
This additional revenue is exactly what the states want and it is this additional revenue that is the central issue of the state legislative initiatives being pushed by nearly every state. Forcing remote sellers to collect sales tax when they don’t have nexus in the ship-to state is also the focus of federal legislation introduced over the past several decades. Utah’s increased sales tax revenue from Amazon.com could be the propellant to push Congress to act on the legislation just recently introduced. The states have long argued that they are losing a material portion of state revenue by not having the authority to compel remote sellers to collect tax even when they do not have nexus in their state.
If Utah can collect an additional $4.14 million in tax in two months from one remote seller, how much more revenue could it collect if another 100 or 1,000 remote sellers collected and remitted sales tax? That’s probably the question they are asking themselves now. During the next several months, as sales tax collections are reported by the other states where Amazon voluntarily started collecting sales tax, I would expect to hear the drum-beat get louder for federal legislation to force all or some portion of remote sellers to collect tax even if they do not have nexus. Utah’s short-term success story bolsters the argument states have been making for 40 years; that uncollected sales tax on remote sales is a material amount and remote sellers now have the ability to cost effectively collect and remit the tax they owe.
Amazon’s decision to collect tax in states where it does not have nexus does not likely have any short-term impact an FBA seller’s obligation to collect and remit tax. Many FBA sellers recognize that owning property in an Amazon warehouse creates nexus for them and obligates them to collect tax on sales shipped to states where they have inventory. The states are well aware of the FBA program and are seeking ways to identify sellers who should be collecting or are trying to force Amazon to collect sales tax on FBA sales even though Amazon is not the retailer. New York has proposed just such a plan.