SALT Blawg – State and Local Tax
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While it is increasingly becoming a common theme amongst state legislatures to target out-of-state online retailers with so called "Amazon" laws, the approach behind those attacks has taken many forms. Amazon laws generally state that an online-retailer must collect sales tax for sales in the state if the company is using an in-state affiliate to market and sell. The online retailer scenario has the in-state affiliates typically place the out-of-state retailer's ads or banners upon their websites and receive a commission or some form of compensation when customers make purchases via the ads. While this is the "typical" Amazon law,ColoradoandSouth Carolinauniquely departed from this traditional view.
Last year Colorado passed an Amazon law, with a twist. Colorado's Amazon law sought to compel retailers to collect sales tax by requiring those who did not to notify their customers that they owed those taxes. The bill required remote sellers to either collect sales taxes voluntarily or to notify customers via first-class mail of their use tax obligation and send a report to the Colorado Department of Revenue ("DOR") outlining the customer's purchases.
Shortly after it was enacted, the Direct Marketing Association filed an action against Colorado challenging its version of the "Amazon" law alleging a discrimination claim and an undue burden claim based upon the dormant Commerce Clause. Earlier this year a federal judge issued a preliminary injunction restraining implementation of the law pending resolution of the case upon its merits. Both sides filed motions for summary judgment and on May 27, both sides filed responses opposing the other side's motion for summary judgment.
Notably, there was an attempt to repeal and replace Colorado's Amazon law, but that bill died on the Senate floor during May of this year. The bill would have taken away the state's ability to subpoena sales records and it would have set up a much easier notification requirement regarding use taxes – requiring internet sellers to merely include a link to the DOR on the receipts emailed to customers, along with a notice that they owe use tax.
Should Colorado be successful defending against the Direct Marketing Association's challenge to its Amazon law, online retailers may still choose whether to collect the Colorado sales and use tax or whether to inform customers of their state use tax obligations.
2. South Carolina
Another state that is attempting to take a unique position with regard to the Amazon laws is South Carolina. On May 27, the South Carolina Senate passed a bill that would exempt Amazon.com and like companies from collecting sales taxes on purchases made bySouth Carolinaresidents. The exemption would sunset on January 1, 2016, and would be limited to taxpayers who:
i. Put a distribution facility in service between December 31, 2010 and December 31, 2013;
ii. Make a capital investment of at least $125 million during the same period;
iii. Create at least 2,000 jobs with comprehensive healthcare plans; and
iv. Maintain at least 1,000 jobs after 2013.
South Carolinaviews the promise of 2000 jobs to the state – particularly when considering the state of the economy – as a huge benefit. The promised jobs would not be minimum wage jobs either; Amazon.com promised a minimum wage of at least $12 per hour for these jobs.
Drawing from Colorado's legislation, the South Carolina Senate made one important change to the version passed by the South Carolina House. The Senate's version of the bill requires online retailers' receipt e-mails to notify South Carolinacustomers of their potential use tax liability. Online retailers would have to alert their customers that they can report and pay the tax using the South Carolina Department of Revenue's Website or using their state income tax returns. Additionally, online retailers would be required to provide customers with statements of their prior-year purchases by February 1 of each year. Last week the legislature passed the amended bill and Governor Nikki Haley now has until midnight tonight, Tuesday, June 7th, to sign or veto the deal. As of midnight, the bill will become law without her signature.
Thus, unlike the Amazon laws elsewhere, South Carolina's legislation seeks to encourage business development and the creation of jobs by benefitting those online retailers, like Amazon, with a short-term tax exemption (until 2016), while the new jobs being generated create additional income tax revenue for the State.