South Carolina will be out $500 million if Amazon doesn't start collecting sales tax as required by state law, South Carolina's Department of Revenue said in a motion filed Nov. 8. The motion said that Amazon owes South Carolina $57 million in uncollected taxes from 2016, and the state extrapolated its analysis over five years, which is how long it said litigation on the case could last. The state is asking that Amazon collect taxes now and put the money in a trust until the case is resolved.
"Ordering Amazon to collect the tax due and remit it to a trust simply ensures that the state will receive what it is owed at the end of the litigation," the motion said.
The case, initially filed in June, alleges Amazon has failed to collect taxes on sales made by third-party merchants, who account for about half of all units sold on the company's marketplace. Amazon currently only collects taxes on products that it sells.
Many third-party sellers store their products in Amazon's warehouses, which are now spread across dozens of states. When those products get sold in the state where they're stored, sales tax has to be collected.
Amazon says the sellers should be responsible for the collection, but South Carolina is arguing that it's up to Amazon to collect and remit taxes for the sellers. As it stands, Amazon's third-party sellers have a price advantage over brick-and-mortar sellers, who collect taxes on all products.
"This advantage threatens to put compliant taxpayers out of business," the motion said. The outcome of the case could determine whether other states follow South Carolina's lead. Amazon warned in its quarterly report that even though it disputes the claims, the company could ultimately "be subject to significant additional tax liabilities."