Amazon to Release Third-Party Seller Data to New York State Tax Department

by Hodgson Russ LLP
Contact

Hodgson Russ LLP

On May 15, 2018, Amazon Services, which assists third parties selling their products through the online Amazon Marketplace, sent an email notifying third-party sellers that “Amazon has received a valid and binding legal demand from the New York State Department of Revenue (DOR)” (we assume the request came from the New York State Department of Taxation and Finance—the state agency responsible for administering tax laws in New York State). According to Amazon’s email, Amazon plans to release the following information to New York regarding its third-party sellers by June 1, 2018:

  •  Contact information (name, address, and federal tax ID number);
  • Total amount of Amazon.com sales made during the 2014 calendar year; and
  • Total amount of Amazon.com sales made to New York customers during the 2014 calendar year.

 Amazon plans to provide the requested information for all third-party sellers who have not elected to use Amazon’s tax calculation services for sales to customers in New York.

 Amazon has received similar requests from other states (including a recent request by the Massachusetts Department of Revenue), and there are several reasons why New York State may be looking to get its hands on Amazon’s third-party seller data.

  1.  New York State has failed to pass laws treating online marketplaces as “vendors” for purposes of the state’s sales and use tax laws. New York has for two consecutive years proposed draft legislation in the governor’s executive budget to treat large (that is, those managing $100 million or more in annual sales) online marketplaces as “vendors” under New York state’s tax laws, thereby forcing the marketplaces to collect and remit sales and use taxes. This provision has not made it into law, and the state may now be turning its focus to the third-party sellers operating on the marketplaces or to customers making tax-free purchases through Amazon.
  2. New York State may be looking to collect unpaid tax from unregistered vendors with nexus under existing law. A state’s ability to impose sales and use tax collection or payment obligations on an out-of-state seller is dependent on whether the seller has sufficient contacts or “nexus” with the taxing state. According to current U.S. Supreme Court precedent (more on that below), in order for a state to impose these obligations, the out-of-state seller’s nexus with the state must satisfy both the due process and dormant commerce clauses of the U.S. Constitution. To satisfy the commerce clause, an out-of-state seller must have some type of physical presence in a state before the state can impose its sales and use tax collection obligations. There are unsettled questions as to whether third-party sellers establish a physical presence in a state simply by Amazon storing the sellers’ products at one of Amazon’s fulfillment centers, but in the context of New York State, Amazon is scheduled to open its first New York fulfillment center on Staten Island later this year, so third-party sellers would not have had property stored in New York in 2014. Some large sellers, however, may have other contacts with New York such as remote employees or agreements with in-state residents under which the resident, for a commission or other consideration, refers potential customer to the seller via a click-through web link. Either of these scenarios could create nexus under existing law. Any third-party Amazon seller concerned that it may currently have nexus with New York State should consider applying for the state’s Voluntary Disclosure and Compliance Program, which offers eligible taxpayers the opportunity to avoid monetary penalties, and possible criminal charges, and also to limit past exposure by voluntarily paying the tax and interest owed during a limited look-back period (generally three years). Importantly, voluntary disclosure is only an option if the applicant is not currently under audit by the Tax Department and has not received a bill for the past due taxes that are being disclosed. Additional audit notices seem highly likely once Amazon delivers its third-party seller data to the state, so interested taxpayers should consider this option sooner rather than later.
  3. New York State may be anticipating an end to the physical presence nexus requirement. The current physical presence requirement for sales and use tax nexus comes from the U.S. Supreme Court ruling in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). On April 17, however, the Supreme Court heard oral arguments in a case directly challenging Quill’s physical presence requirement. In South Dakota v. Wayfair, Inc., et. al. (Docket No. 17-494), South Dakota has asked the Court to review and overturn Quill’s physical presence standard. According to South Dakota, the physical presence requirement is harmful to local governments, brick-and-mortar businesses, and to interstate commerce itself. A decision from the Court is expected later this year, but opponents to South Dakota’s petition are wary of the possibility for retroactive application of any new sales and use tax nexus standard that eliminates the physical presence requirement. Although several states have filed briefs in the Wayfair case, claiming they are not interested in retroactively applying any new decision by the Supreme Court, sellers may have good reason to doubt this claim. If a third-party seller receives an audit notice from the New York State Department of Taxation and Finance in the wake of either the U.S. Supreme Court’s Wayfair decision or in reference to information the Tax Department received from Amazon, the sellers should consider their nexus and retroactivity arguments against any audit looking to impose tax on sales from prior periods.
  4. New York State may be looking to collect unpaid tax from customers making tax-free Amazon purchases. Finally, states have long complained that Quill’s physical presence standard leaves them in an increasingly untenable financial position, as remote retailers, invoking Quill, effectively receive a tax subsidy because of how unlikely it is that their customers will ever pay the corresponding use taxes that they owe. In New York, like most states, customers who purchase taxable items without paying sales tax at the time of purchase may owe a corresponding use tax if their purchase is delivered or used in New York. Very few New Yorkers comply with this obligation, and the state may be looking to send notices to and collect from purchasers who received a tax break on their recent Amazon buys. We have seen New York State use other information sources, including U.S. Customs and Border Protection, to send similar notices to New York residents. If you are a frequent Amazon buyer and have ignored the state’s sales and use tax on e-commerce purchases up until this point, you too may want to consider the state’s Voluntary Disclosure and Compliance Program.

Regardless of New York’s motives, it is clear that states (and President Trump’s Twitter feed) are increasingly focused on Amazon’s online marketplace sales. Any marketplaces, vendors, or purchasers active in this area must ensure they are fully aware of their obligations and have a plan in place to address any potential exposure. It should come as no surprise that technology moves faster than government bureaucracies, but in the ever-expanding area of online sales, the states are catching up.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hodgson Russ LLP | Attorney Advertising

Written by:

Hodgson Russ LLP
Contact
more
less

Hodgson Russ LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.