The estimated nearly $2 billion in unpaid 2016 state sales tax from FBA sellers was calculated through a study based on thousands of products being checked to determine for a given SKU by a given FBA seller, shipping to a specific state, whether or not that seller would charge sales tax to the customer. The study was conducted in October 2016.
The Capitol Forum published the unique study earlier this year:
“A source provided The Capitol Forum with a trove of data showing that Amazon third-party sellers who use fulfillment by Amazon (FBA) failed to pay an estimated $1.9 billion in state sales tax in 2016 alone. Taking into account extremely low tax compliance rates by FBA sellers, states are owed several billions of dollars of back sales taxes. “
Out of the Top 5,000 Amazon.com FBA sellers - the study independently relied on some of our data - the report found that sales tax was charged in just 5.5 percent of state-seller combos. California (20.8 percent), Florida (8 percent), and New Jersey (7.6 percent) had the highest compliance rates, while Ohio (6.0 percent), Kansas (2.6 percent), and Connecticut (2.0 percent) had the lowest.
When the analysis was repeated using a sample of 16,000 sellers outside of the top 5,000, the overall compliance rate fell to 2.2 percent.
We could not replicate the study.
The report estimated that unpaid sales tax amounted to an average of one-third of sellers’ net profit at an average of $49,000 in sales tax liability for every $1 million sold (based on state sales tax rates, and an average net profit margin of 15 percent). The problem is that audits by sales tax revenue agencies can go back years, possibly requiring the seller to pay not only the unpaid sales tax, but also penalties, and interest.
Recently Multistate Tax Commission’s Nexus Committee (MTCNC) announced an amnesty plan - starting August 17th, 2017 sellers have 60 days to voluntarily disclose their previous sales into participating states. In exchange the seller will not become responsible for previous sales tax liabilities. Yet some have said that this is not as simple as it might appear to be.
The issue of sales tax on marketplaces has been brought up many times in the past, and as Amazon continues to lead the growth of US ecommerce this topic will only get louder. More regulators are becoming fully aware of the make-up of Amazon, and the size of the marketplace Amazon so creatively hides in their earnings reports.
Though sales tax compliance is challenging, to the point of even allowing external services like TaxJar to get created, and noncompliance is risky in unclear ways. Given the complexity of FBA inventory locations, sellers have complained that Amazon does not make it easy to stay compliant. As far as creating sales tax nexus without proper disclose to sellers. Also, many sellers based outside of the US are even less likely to be compliant.