Many FBA sellers wondered why Amazon was turning over information to RI since there is no warehouse in RI. That is a great point and the answer is because this is not about sales tax nexus in the traditional sense.
What that simply means is since you do not have physical presence nexus, the state cannot use that angle to require you to collect tax. Instead, they have decided to make your client's life so miserable that they decide to collect tax voluntarily.
You may recall that Amazon sent an email to its sellers informing them that Amazon was going to turn over seller information to the state of Massachusetts. Amazon recently announced that it was turning over seller information in Rhode Island.
What's Up in Rhode Island?
Here is a synopsis of what is happening in the Ocean State:
In RI, the tenets of this new statute say that if you are a non-reporting remote seller with either revenue above $100,000 or 200 plus transactions in RI during the last calendar year you are required to do all of the following:
- Post a Notice on your website
- Notify the customer at the time of purchase (Checkout Notice)
- Notify the customer within 48 hours of purchase (48-Hour Notice)
- Send customer with $100+ in annual purchases the Annual Notice by January 31st; and
- Provide by February 15th each year the Annual Attestation that the notice requirements were fulfilled.
The notices must state that the customer is required to pay a consumer use tax directly to the state since the seller has not collected sales tax. Not great messaging, but it gets worse.
The penalties for non-compliance are egregious. It can be $10 for each failure to comply. So on each transaction you could have up to $50 in penalties, but it's even worse. The minimum penalty is $10,000.
All these requirements and fees go away if you “voluntarily” register. Seems to me more like registering under duress, almost like a shotgun wedding.
Needless to say, this has created a small panic among FBA sellers. But this is not limited to FBA sellers. Since these laws are targeted at any remote seller who does not have nexus with a state, it applies to all Amazon sellers, eBay sellers, Etsy sellers, etc.
It can even apply if your clients are selling only through their own website. If they have physical presence (like inventory) nexus, the state will pursue them for that,and if they don’t the state will pursue them for this remote seller nexus. And it is not just happening in Rhode Island.
There are currently 12 states with statutes like this in place with more states introducing legislation. Some of these states like Washington or Pennsylvania have minimum $20,000 penalties.
This may seem like a brand new development, but it is actually been brewing for many years and is now gaining momentum. Colorado started it off roughly eight years ago and the Direct Marketing Association (DMA) got an immediate injunction against that state and fought against it in the courts for seven years. That case went to the US Supreme Court twice and while the Court did not decide it on the merits, neither did they strike it down. CO became effective in July, 2017. Many other states have followed suit.
What Can Your Clients Do?
We urge our clients to be cautious and register if they are above the thresholds. The costs of sales tax compliance are generally substantially lower than the costs of the notice and reporting requirements and the penalties can be severe for non-compliance.
Registering to collect the tax even though a seller has no physical presence in the state seems to be the least painful of all the poor choices a seller has in this situation. Considering the alternative of trying to comply with the notice and reporting requirements of this RI statute, it seems like the better choice.
A seller could also hold out and fight the state if they do impose penalties on them. We admire the seller that does fight this on principle, but that could be a very expensive undertaking.
Some sellers may simply or hope the state misses them somehow. Unfortunately, that seems like a bad bet, because sellers who use Amazon or other “facilitators” are being turned in.
Online sellers and the accounting professionals who advise them need to stay well informed of the changing rules to avoid onerous penalties.
About Michael Fleming
Mike is the founder of Michael J Fleming & Associates dba Sales Tax and More. Prior to beginning this new venture, Mike spent the better part of a decade with Peisner Johnson, an accounting firm that is focused entirely on solving state and local tax issues.