Amazon loses US out-of-state Internet sales tax battle

Tue 3rd Dec 2013

The giant online retailer, Amazon, will be obliged to charge New York Sales Tax on sales to local consumers from its out-of-state website.  This is based on a 2008 law, backed by the Supreme Court this week, created to give local online retailers a level playing field in terms of having to charge Sales Tax.

This comes as the US Internet Tax Market Fairness Act has stalled in Congress.  This seeks to capture the estimated US$30 billion of untaxed out-of-state sales.

US Supreme Court rules out-of-state B2C e-commerce liable to sales tax

Historically,e-retailers selling to consumers in States where they do not have a permanent establishment (‘nexus’) would not have to charge the consumers’ US Sales Tax.  This gave out-of-state e-retailers a competitive tax advantage.

This has been changing in the past years.  Partially because big retailers like Amazon decided that they needed in-state warehouses and staff to ensure same-day fulfillment.

Amazon and Overstock had asked the Supreme Court to rule in the State of New York. It refused, meaning that GST was indeed liable on local sales even where there was no nexus.  This effectively overturns Quill v North Dakota, which held that states could not compel retailers to charge taxes if they were not located within the state.

Many states already charging GST on internet distance sales

States such as California have looked to introduce special out of state clauses to extend their Sales Tax net.  Others include: Arizona; Connecticut; Georgia; Kansas; Kentucky; Massachusetts; New Jersey; North Dakota; Pennsylvania; Texas; Virginia; Washington; West Virginia and Wisconsin.  Indiana, Nevada, and Tennessee will launch in 2014, with South Carolina following in 2016.

In Europe, Internet e-retailers distance selling into other member states of the EU must charge VAT at the local rates and pay to the country of residence of the customer.