Out-Of-State Sales Tax in Forefront as Amazon Seller Faces $1.6M Bill

The Key Case

Sales taxes are more complicated than ever thanks to a U.S. Supreme Court decision that allows states to tax out-of-state sellers. Get a handle on the South Dakota v. Wayfair decision and what it might mean for your company.

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The newfound power of states to tax out-of-state sellers is making its ramifications felt, especially for one Amazon seller.

California sent a $1.6 million sales tax bill to a Philadelphia area man who sells items on Amazon.

The bill, which is for the first six months of 2019, claims to be for sales taxes that Brian Freifelder didn’t collect from consumers who bought his goods on Amazon, according to the Philadelphia Inquirer.

The bill hinges on a new California law that requires "marketplace facilitators" to collect sales taxes, even if they're out of state sellers. It also follows the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair that sellers can be liable for state sales taxes even if they don’t have a physical location in the state.

Eye Popping Number, But Not An Isolated Case

Freifelder, who has fewer than 10 employees, buys on-sale and clearance items from retail stores, keeps them at a Bensalem, Pa., warehouse, and sells them via the Amazon website, apparently with Amazon handling distribution and logistics from there.

California claims Freifelder became liable for the taxes when Amazon stored Freifelder’s items at a California warehouse. Friefelder claims that it was Amazon’s decision to store his items in California, without his knowledge, and that the amount of the bill is not in line with his company’s revenue.

Friefelder’s situation is getting attention for its eye-popping number but it’s not an isolated situation. The Inquirer reported that Friefelder is believed to be only one of hundreds of thousands of out-of-state merchants who recently received a tax bill from California.

Power to Tax Out-of-State Sellers is Growing

It is not clear whether Friefelder can wriggle out of the tax liability. What is clear is that states are more empowered than ever to ramp up sales tax collections on out-of-state sellers, and they are acting on it.

Expect to learn of more situations like Friefelder’s in the near future. Any business that sells online needs to understand new laws for out-of-state sales tax, including the Wayfair decision and its implications.

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