Amazon tax bills come due
South Carolina residents who bought things last year from Amazon.com are now receiving emails reminding them that they owe the state money, because the online retailer didn't collect the sales taxes.
While Amazon's customers might be surprised, South Carolina residents always have been required to pay tax on online purchases -- it's just a question of who collects the money. In practice, when it comes to declaring online purchases and paying the tax, consumers have been lax, costing the state an estimated $110 million annually.
"Honestly, I would say that most people don't know about it," said Anthony Freeman, an East Cooper accountant who owns A. Freeman Consulting and Tax Service. "But that doesn't mean they don't have to report it."
Retailers that have websites as well as stores in the state -- such as Walmart, Lowe's and Barnes & Noble -- must collect tax on sales to South Carolina residents, but Amazon.com and websites with no physical business in the state don't have to collect the tax.
Amazon fought a hard public battle last year to keep from having to collect South Carolina sales taxes, after announcing plans to build a distribution center in the state.
The company received a five-year tax-collection exemption from the state, and as part of that legislative deal, was required to notify customers of the responsibility to pay tax.
The law was written for Amazon but applies to any company that opens a distribution facility in South Carolina in 2011 or 2012 that involves a capital investment of at least $125 million and "creates at least two thousand full-time jobs and with a comprehensive health plan for those employees."
Lawmakers required Amazon to tell South Carolina customers the amount of money for which they owe tax, but did not require Amazon to report that information to the state -- a point Amazon notes in its emails to customers.
The company did not respond to a request for comment.
"Amazon is not required to remit the use tax, but they are required to tell customers about the use tax," said state Department of Revenue spokeswoman Samantha Cheek. "Amazon does not report those figures to Department of Revenue."
The easiest way for South Carolina residents to pay tax owed on online purchases is by declaring it on their annual income tax form.
Residents have largely ignored the law, however. Out of more than 2 million South Carolina individual tax returns, just over 12,000 declared such taxes in 2009, the most recent year for which data was available.
As a result, the state collected less than $1 million of an estimated $112 million owed in taxes on online purchases.
State revenue and budget officials have not produced their own estimates, but the S.C. Budget and Control Board refers to a University of Tennessee study that estimated that South Carolina state and local governments would lose $110.8 million in 2011 and $124.5 million in 2012.
Freeman said the emails from Amazon.com might increase tax collections by reminding people that taxes are owed and telling them the amount of purchases.
"If they didn't send that out, most people would not know they had to report it," Freeman said.
The notices will make it harder for taxpayers who shopped on Amazon.com to claim ignorance when they get to the "use tax" box on state income tax forms. Use tax is the official term for tax owed on goods purchased for use in South Carolina, if state and local sales taxes were not collected at the time.
Amazon's exemption from collecting the South Carolina tax on sales was tied to the company's promise to invest in the state and create jobs, which the company did when its Lexington County distribution center opened last fall.
This month, Amazon announced that it also will open a million-square-foot distribution center in Spartanburg this year, which "will create hundreds of new full time jobs and involve a $50 million investment in the state."