States Continue Push for Sales Tax Fairness

Arizona to Amazon: Pay Up

In Amazon.com’s annual Form 10-K regulatory filing [1], released February 1, the online retailer disclosed that the state of Arizona is seeking some $53 million in unpaid transaction privilege (or sales) tax plus interest. The filing noted that Arizona issued the assessment in November.

Amazon.com has four distribution centers in Arizona, but claims it does not have nexus in the state.

Dating back to 2008, the American Booksellers Association has communicated with Arizona’s revenue department numerous times regarding Amazon.com’s refusal to collect sales tax in the state, despite the online retailing giant having distribution centers in the state.

In its filing, Amazon.com noted: “In November 2011, the State of Arizona issued assessments on behalf of the State and certain cities in the amount of approximately $53 million, including tax and interest, for uncollected tax for the periods March 1, 2006 through December 31, 2010. The State of Arizona is alleging that we should have collected a transaction tax that is similar to a sales tax on applicable transactions during those years. We believe that the assessment is without merit and intend to vigorously defend ourselves in this matter.”

Arizona is the second state to charge Amazon.com with for back sales taxes. In October 2010, Texas issued a back sales tax assessment of some $269 million in uncollected sales tax, including interest and penalties, for the period from December 2005 to December 2009. Amazon.com is appealing the assessment.

Pennsylvania Extends Deadline for Nexus Compliance

On January 27, the Pennsylvania Department of Revenue (PDR) extended the deadline by which remote sellers with a physical presence in the state must register to collect and remit sales tax to the state. The deadline, which had been February 1, has been pushed back to September 1, 2012. In December, PDR issued a regulatory bulletin clarifying existing state sales tax laws and affirming that remote sellers with warehouses or online affiliates are required to collect and remit sales tax for purchases made in the state.

Commenting about the deadline change, Revenue Secretary Dan Meuser noted in a statement: “We heard from a number of e-commerce businesses that companies are willing to comply with their Pennsylvania sales tax obligations, but our original February 1 compliance deadline is impractical from operational and technical standpoints. In the interest of being reasonable and respecting the difficulty of tailoring sales tax software to Pennsylvania’s complicated sales tax rules, we believe extending the compliance deadline is the fair thing to do.”

Meuser stressed that the new deadline is “well before” the next holiday sales season, a scheduling that PDR said reflects its effort to enforce uniform sales tax collection and “foster fair competition” among e-commerce and bricks-and-mortar stores in advance of the busiest time of the year. Meuser added that this will be the “only deadline extension that will be offered.”

Under the guidelines noted in the bulletin, if a company has nexus in Pennsylvania but has not been collecting sales tax on Pennsylvania consumer purchases, it must become licensed to collect sales tax as soon as possible, but no later than September 1, 2012. Companies with nexus that fail to begin collecting sales tax as required by law may be pursued by a variety of  “escalating enforcement options over time,” including audit, assessment, lien, and/or referral of the case to a collection agency or the office of Attorney General.

PDR noted that “in cases where companies with nexus blatantly disregard the Tax Bulletin and their obligations to begin collecting sales tax, the department has the statutory authority to look back at least three years for audit and assessment purposes.”

 “It’s simply a matter of fairness under the existing law,” Meuser said. “And it’s essential that both e-commerce retailers with nexus and brick-and-mortar stores in Pennsylvania, many of which are small businesses employing thousands of Pennsylvanians with retail jobs, are treated equally.”

Massachusetts Governor Urges Congress to Support Sales Tax Fairness

In a recent letter to the Massachusetts Congressional delegation and other Congressional leaders, state Secretary of Administration and Finance Jay Gonzalez expressed Massachusetts’ support for passage of federal legislation that would give states the authority to require remote sellers to collect and remit sales tax to the state.

In the letter, dated January 9, Gonzalez wrote: “We join the National Governors Association and more than 25 other states in supporting federal legislation to ensure that this collection takes place. Massachusetts loses nearly $200 million in revenue every year because we are unable to ensure that our existing sales tax is collected on these remote, often Internet-based sales. That amount grows every year. This situation also significantly harms the competitiveness of local brick-and-mortar retailers, who do collect our state sales tax.”

Maryland Introduces Sales Tax Fairness Legislation

In Maryland, Gov. Martin O’Malley’s proposed 2013 state budget includes a proposal requiring remote online retailers to collect and remit sales tax for purchases made by Maryland residents.

The governor’s budget highlights [2] note that “additional revenues are achieved through proposals that level the playing field between Maryland retailers and their out-of-state online competitors by requiring the collection of sales tax….”

The Washington Post [3] reported that lobbyists said they would fight the measure if it is included in O’Malley’s budget. The governor’s budget expects to collect about $21 million in new tax revenue by instituting the measure, the article said.