Amazon has another 'Prime' holiday: Profit tops $3 billion

Amazon allows outside "third-party" merchants to sell goods on its widely used online marketplace. South Carolina wants the company to collect taxes on those purchases. File/AP 

Taxpayers often mark April 15 on their calendars.

For Jeff Bezos and Amazon.com, a more immediate date is top-of-mind: Feb. 4.

On Monday, the online retail disruptor extraordinaire is scheduled to square off against the state of South Carolina in a high-stakes court battle over sales taxes.

More than $12 million is on the line – and that’s just for starters.

At the crux of the dispute is whether Amazon should be required to collect and remit taxes on goods that other merchants sell in South Carolina through its online marketplace.

The Department of Revenue's response is an adamant yes. It's seeking nearly $12.5 million in uncollected back taxes, interest and penalties from third-party Amazon sales from a three-month period several years ago.

Left unchecked, the state has estimated it could be out as much as $500 million in revenue by 2021.

Amazon isn't buying it, arguing that it's not responsible for gathering taxes for other merchants, even though it already does so in eight states

It's also concerned about losing — and the broader impact on its bottom line, which was $10 billion in the black last year on revenue of $233 billion.

“South Carolina is alleging that we should have collected sales and use taxes on transactions by our third-party sellers,” Amazon said in its latest quarterly report to investors. “We believe the assessment is without merit. If South Carolina or other states were successfully to seek additional adjustments of a similar nature, we could be subject to significant additional tax liabilities. We intend to defend ourselves vigorously in this matter.”

The action moves this week to a court in Columbia that handles disputes involving state agencies. It’s unclear when a decision will be issued or whether the eventual ruling will be appealed.

Third-party sales involve items sold on Amazon but not by Amazon. The online behemoth has said its role is to bring consumers and merchants together while also handling some back-office tasks, such as shipping and payment processing.

South Carolina is seizing on that point, saying it considers Amazon the seller in those transactions because it controls so much of the process.

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The retailer once resisted paying sales taxes. But as it has expanded across the country it now collects them where ever it's required on items it sells directly. 

South Carolina gave the e-commerce giant a five-year tax-free ride in 2011 after the company agreed to invest $125 million and create 2,000 jobs in the state. The state has since said that reprieve provided "fair warning” that all sales would be fair game.

The Department of Revenue wasted little time checking up on the company after emails and calls came in from South Carolina consumers who reported that "Amazon charged them sales tax on some purchases but not others.” Its 2016 audit analyzed records from the first three months of collections.

The agency came back with a nearly $9.6 million assessment for third-party sales. Interest and penalties have added about $2.9 million to the tab.

The dispute landed in the S.C. Administrative Law Court about 18 months ago, when Amazon challenged DOR's legal interpretation. The appeal is being closely watched by other states.

Depending on the ruling, the case could inspire copycat claims and create a tax-gathering hassle not only for Bezos & Co. but for other consumer websites that allow third-party sales. That would include eBay and Etsy. 

Just last week, Nebraska was bandying the idea about to put it on even footing with neighboring Iowa and South Dakota, said Renee Fry, executive director of the OpenSky Policy Institute, a tax policy think tank.

"It's logical and efficient to have them collect the sales tax," Fry told the Associated Press on Thursday.

Contact John McDermott at 843-937-5572 or follow him on Twitter at @byjohnmcdermott