Amazon has been forced to take action for tax collection. In the upcoming year, the company will start recovering sales tax for its third-party merchants, especially in its home state of Washington. This was revealed in an announcement made through the company’s sellers forum.
The new service, known as Marketplace Tax Collection, will automatically add sales tax for third-party merchants who are selling products to customers in specific states. Washington is the first, as the state passed a legislation that will be effective starting January 1, 2018. According to the new law, all online marketplaces like Amazon are to collect sales tax from its third-party sellers.
This is going to be a new development for Amazon. To date the company was collecting sales tax only for products it was selling directly to customers. Third-party sellers were asked to manage tax collection on their own. Also, there was a loophole where merchants who had a physical presence in the state were only supposed to collect tax from buyers.
Washington is eliminating that loophole, and has declared that all online sales need to be taxed. So, if a retailer in Denver sells a product to a customer in Seattle, Amazon will have to handle the applicable tax collection and payment. Soon, other states will follow this mandate, according to James Thomson who was former Head of Services at Amazon and currently a partner at BuyBox Experts.
Minnesota and Rhode Island are the next in line to implement this law in years to come. At the moment, retailers in other states are responsible for their own tax obligations.
With Amazon’s growing influence in the industry, the e-commerce market in the U.S is expected to reach $500 billion by the year 2018, according to a report by Forrester. Sources have indicated that the amount of uncollected sales tax, just from Amazon’s sellers could reach $2 billion.
The state of South Carolina has also claimed to have this law in place. It even filed a law suit against Amazon for uncollected taxes that mounted to $57 million. Amazon has indicated that it will defend its case. The legal process was initiated but it has been very slow, which is evident from the fact that only 850 sellers have signed up so far.