To Tax, or Not to Tax, Amazon Snarled in a South Carolina Nexus

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Amazon recently filed a brief against the state of South Carolina, which in 2011 saw the passing of the “Distribution Facility Sales Tax Exemption” by the South Carolina Assembly. This was an effort to incentivize Amazon to build a fulfillment center in the state.

The South Carolina legislation gave retailers like Amazon, which satisfied certain requirements, a special five-year exemption from sales and use tax on the retailer’s online retail sales to the state’s customers. In the same year, the company opened a facility in Lexington, South Carolina, thereby giving the retailer a presence in the state.

On January 1, 2016, Amazon registered as a South Carolina retailer and began collecting and remitting sales tax — but only on the retail sales of Amazon Prime sales. Amazon stated that it acted as a place for third-party resellers to sell their products on Amazon’s platform, for which Amazon had no control.

Just like any other online platform, Amazon left the collection and the reporting of the taxes for these outside retailers on the outside retailers. South Carolina audited Amazon’s sales and determined that the company owed more than $12 million from these sales. Amazon appealed this ruling and in its brief, asked for an injunction against the state collecting the taxes on these outside sales.

The fulfillment center in South Carolina is set up for the sales of Amazon products, which are sold to Amazon Prime members. For sales tax to be paid to their certain states on the other sales from third-party outlets, even if drop shipped to their center, it is up to the outside salesperson.

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About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.


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