COLUMBIA Amazon must pay South Carolina millions in uncollected sales taxes, the state Supreme Court ruled Wednesday.
The justices’ 3-2 decision decided a decade-old dispute between the online retail giant and the state Department of Revenue over whether Amazon should have collected state sales taxes on behalf of third-party sellers on its website.Lawyers for Amazon declined to comment on the decision, citing law firm policy.The case is specifically over $12.5 million owed in the first three months of 2016, the months immediately after the expiration of a five-year sales tax exemption approved by the Legislature.However, the ruling could actually result in Amazon owing more than $277 million tied to two separate pending cases, the state Department of Revenue said previously.
Amazon disputed the bill and argued that the state tax code was unclear, and that it was the responsibility of those independent sellers to collect taxes from customers and pay the tax bill.The company claimed it operated an online marketplace that did not own the goods and was not the seller. Rather, it was simply providing a platform.
The Administrative Law Court disagreed, as did the state Court of Appeals. And now, so has the state’s highest court.“Amazon Services structured its business model in a way that provided it with comprehensive control over third-party transactions,” wrote Justice John Few. “This control was so significant that a third-party transaction could not occur on Amazon.com without actions taken by Amazon Services.”By that logic, Few writes, Amazon was “engaged … in the business of selling,” making the company responsible for collecting taxes on sellers’ behalf.Few was joined by justices Gary Hill and George James.
Chief Justice John Kittredge, on the other hand, believed Amazon had a point. State law could be interpreted both ways and long-standing precedent calls for ruling in favor of the taxpayer when there is doubt, he wrote in a dissenting opinion.Acting Justice Courtney Clyburn Pope joined Kittredge in his dissent.
Amazon has actually already paid the disputed $12.5 million. It had to pay its tab before the Appeals Court would take up the case.The bill kept growing, however, as Amazon still wasn’t collecting sales taxes from third-party sellers and sending it to Revenue. The company didn’t start making those collections until April 30, 2019.According to two state audits, Amazon owes $277.2 million in back taxes and interest from April 1, 2016, through 2019. The second audit came as the Legislature debated a law on third-party sellers, signed by Gov. Henry McMaster on April 26, 2019.
Amazon has not paid that tab, a spokesman for the state Department of Revenue confirmed Wednesday.The company had disputed both of those bills to the Administrative Law Court as well. Those cases had been put on hold pending Wednesday’s ruling.Prior to a U.S. Supreme Court ruling in 2018, which reversed an earlier decision, companies needed a physical location in a state to be required to collect and pay taxes from sales within that state.For Amazon, that meant once it built a distribution center in a state, it would need to collect taxes from online shoppers living there unless it received an exemption, which it pursued in states nationwide.
South Carolina obliged, promising in 2010 a five-year exemption in exchange for creating at least 1,249 full-time jobs with health benefits and investing $90 million. The deal struck by the administration of then-Gov. Mark Sanford was almost undone after Gov. Nikki Haley took office in January 2011 and attempted to cancel it.
Organizations representing brick-and-mortar retailers opposed the deal as giving Amazon an unfair advantage. After the deal appeared dead, Amazon upped the ante to at least 2,000 full-time jobs with a $125 million investment and the Legislature ultimately approved the exemption over Haley’s objections.
The law resulted in Amazon building its first two distribution facilities in the state in 2011 and 2012 one in West Columbia and one in Spartanburg.
When the sales tax exemption ended Dec. 31, 2015, Amazon began collecting sales taxes on purchases sold directly by Amazon and its affiliates but not third-party sellers on the website.Those sellers had the option to pay an additional $40 monthly fee to Amazon to collect the taxes for them. But Amazon still sent the money to the seller to forward to Revenue. Many didn’t bother.
