With the addition of a new Amazon distribution center in Kenosha, WI, the number one largest online retailer will soon be collecting sales tax from almost 50% of the American population.
Amazon will begin collecting Wisconsin sales taxes on Nov. 1 and the state expects to benefit to the tune of $30 million per year.
Beginning Nov. 1st, Wisconsin will become the 14th state Amazon collects sales tax for. The mega-retailer has arrangements to add at least 6 more states to that list over the next 3 years.
Amazon currently has nexus is 18 states. Nexus, a physical in-state business presence, has long been the determining factor behind which businesses have to collect sales tax. Nexus is created by brick and mortar stores, distribution centers or warehouses, call centers, offices, sales people, and sometimes just by sending an employee to a convention.
The mega-retailer already collects sales taxes in Arizona, California, Georgia, Kansas, Kentucky, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington and West Virginia. Amazon has a physical presence in all of those states except for Georgia and New York.
Georgia passed a law in January requiring all online retailers doing business within the state to collect sales taxes and Amazon complied starting last September. New York won a court appeal upholding the state’s right to claim nexus is created when an out-of-state retailer pays in-state affiliates a commission to promote their products or services. New York refers to this as “click-through nexus”.
Amazon shut down its Connecticut affiliate program back in 2011 to avoid click-through nexus in that state but may be thinking about restarting the program as it recently announced that it will begin to collect Connecticut sales taxes and invest $50 million over the next two years for a jobs initiative.
Amazon has distribution centers in New Hampshire and Delaware where neither state has a sales tax. It also has centers in Indiana, Massachusetts and Nevada and has agreed to begin collecting sales tax in these states in the near future.
Amazon has acknowledged that it has nexus in Tennessee and South Carolina, but made special deals with those states which allow it to postpone sales tax collections for a time. Tennessee Gov. Haslam agreed to hold off on an Amazon tax until 2014 if the retailer agreed to send notifications to all customers about how much tax they owed on their purchases going back through 2012. South Carolina made a deal that exempts the company until 2016 in return for a promised distribution center and its 1,200 jobs. The state left itself an escape clause saying the agreement would be nullified should the Marketplace Fairness Act pass and create a standardized set of federal regulations.
This patchwork of regulations, state-by-state agreements and endless legal battles seems to be the main impetus behind Amazon’s support for the Marketplace Fairness Act or universal online sales tax. This law would significantly ease Amazon’s burdens while simultaneously increasing the burden on other smaller online retailers. Amazon stands to significantly widen its lead over the competition.
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.