Amazon shoppers will probably pay sales tax on more oftheir purchases this holiday season.

Right now, consumers pay tax on goods purchased directly fromAmazon, but they don't in many cases if they buy fromthird-party merchants on the e-commerce giant's marketplace. Thatcould change on Dec. 1, when some merchants are expected to startcollecting taxes in exchange for partial amnesty from back taxes inabout half of U.S. states—among them Florida, New Jersey andTexas.

The deadline to apply for the multistate offer is Oct. 17, andit's not clear how many merchants will sign on. Because so manyhave complained about the tight timeline, the states are holding ameeting on Wednesday to decide whether to extend the deadline.

But however the drama plays out, all signs point to theeventual closing of long-standing loopholes that let you buy stuffonline without paying sales tax.

“We've been waiting many years for the federal government or thecourts to tackle this issue and they haven't,” says Minnesota Sen.Roger Chamberlain. “It's a fairness issue. Right now, there's anunlevel playing field that disadvantages brick-and-mortar stores.”Even President Donald Trump has weighed in on the issue, tweetingin August that Amazon was causing “great damage to tax payingretailers.”

Amazon.com Inc., which prefers one federal law governing salestax collection rather than a state-by-state patchwork, declined tocomment.

A 25-year-old U.S. Supreme Court case established the rules manyonline merchants follow today. The ruling barred North Dakota fromforcing Quill Corp. to levy sales tax because themail-order office-supply operator lacked a physical presence in thestate.

For many years, Amazon hewed to the Quill ruling and didn'tcollect sales tax—even on the stuff it sold itself. But the companygradually changed its position as it built warehouses all overthe country, giving it a greater physical presence in multiplestates. Amazon now collects sales tax on inventory it owns directlyin all states that levy such taxes.

But about half of its sales are goods owned by 2 millionmerchants posting products on its site. Amazon leaves taxcollection up to them and many maintain that's not theirresponsibility. That's why shoppers pay tax on some Amazonpurchases and not on others.

States have been waiting for the Supreme Court to revisit theruling or the federal government to clarify the matter with newlaws. But the old ruling stands, no bills in Congress have made anyheadway, and the tax revenue lost to online sales continues togrow. So now the issue is playing out one state at a time.

The key question: Who will be responsible for collecting andremitting the taxes when someone buys something from a third-partyseller on Amazon.com? Is that Amazon's job or the merchant's job orsome combination?

Experts disagree, and states are using different tactics tocollect. South Carolina is going after Amazon directly in court,saying it owes $12.5 million in back taxes, penalties and interestfrom third-party sales. Amazon has vowed to fight the case.

Minnesota, home to brick-and-mortar competitors TargetCorp. and Best Buy Co., in June enacted the country's firstlaw requiring companies like Amazon and EBay to collect sales taxeson goods sold by third-party sellers. They'll have tocomply in 2019—or even sooner in the event the Quill ruling isoverturned. Amazon's home state of Washington followed with asimilar law that takes effect in January.

Massachusetts, meanwhile, got a court order forcing Amazon toturn over by mid-October the identities of marketplace sellersdoing business on the site since 2012. That could set off ascramble among states competing to collect back taxes, saysJames Thomson, a former Amazon senior manager who now advisesmerchants how to sell on the marketplace. “If Massachusettssucceeds,” he says, “it's going to be a bloodbath.” Amazon hasyet to indicate if it will provide the records or challenge theruling.

Several merchants interviewed for this story sayAmazon should be required to handle taxes for sales on itsmarketplace. Their argument is that Amazon is like a traditionalretailer while they're like suppliers. They alsosay collecting sales tax is an unfair burden onsmall business because it would require them to file everymonth in multiple states and taxing districts that each have theirown rates and peculiarities. But the merchants fear states wouldrather collect taxes from them because they're easier targetsthan Amazon, which can afford a protracted legal fight.

To further complicate matters, Amazon has launched a nationwidesearch for a second headquarters location that could employ up to50,000 people. So states taking an adversarial position againstAmazon by trying to collect taxes are simultaneously trying to lurethe company for a major investment. Sellers fret that Amazon willhave leverage to push the tax collection burden onto them.

“Sellers are scared,” said Paul Rafelson, a corporate taxattorney advising online merchants regarding the amnesty agreement.“They don't think they did anything wrong, but they don't know ifthey can afford to get caught. They want to know why the statesaren't going after Amazon like South Carolina.”

From: Bloomberg News

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