Online Merchants Guild

Washington Hits Small Businesses with Back Taxes, Threatens Liens Because Amazon Moved Inventory Into the State


Boca Raton, FL -- (ReleaseWire) -- 04/03/2019 --Following California's lead, the Washington Department of Revenue(DOR) is threatening to unlawfully collect back sales taxes on small businesses who use online retail marketplaces such as Amazon along with their Fulfillment by Amazon (FBA) service.

Despite assurances that post Wayfair sales tax compliance prohibits retroactive collection, many marketplace sellers have reported receiving letters and threatening phone calls, asking for inventory reports from Amazon or else they would be subjected to a DOR assessment. The DOR calculated payments and gave business owners 30 and 90 day payment periods to pay years of back taxes. The WA DOR claims that any amount of inventory in a WA Amazon FBA warehouse will trigger physical nexus for marketplace sellers. Even the most unsubstantial amount.

Marketplace sellers who utilized Amazon's FBA service were unaware Amazon was moving inventory into other states. These marketplace sellers did not target Washington, put employees or direct Amazon to send inventory to that state. This is putting a tremendous burden on small, kitchen-table enterprises—many of which are minority or veteran-owned businesses.

One client, who wishes to remain anonymous, said he was contacted by the Washington DOR and threatened with liens and levies unless he paid tens of thousands of dollars—even though his business is located in another state.

"WA DOR sent me an assessment even though we had less than 1% of our FBA inventory in the State of Washington. The inventory was more than likely sent there similar as to how USPS, UPS or FedEx send inventory to distribution hubs. Amazon even has its own delivery service called Amazon Flex. We were never directed or told Amazon to move inventory there. There is no way I or any other Amazon seller can pay years of backtaxes. This feels like taxation without representation. The state pressures and threatens and is unwilling to work through a reasonable solution."

While back-tax collection on small business owners is sweeping through Washington, the unlawful collection has drawn the ire of some California politicians. Earlier this month, the California State Treasurer Fiona Ma asked Governor Gavin Newsom to direct the California Department of Tax and Fee Administration to cease back sales tax collection on small businesses that used Amazon's FBA service.

In a letter, Ma said: ""I write this letter to you in an effort to protect small businesses, both within California and worldwide, from the cost and compliance burdens related to taxes that they are neither well-positioned to collect nor legally responsible for under California law."

To add fuel to fire, Washington law specifically says that marketplace users that use Amazon's FBA service are not retailers, they are consignors. Amazon as a consignee under state law would therefore be charged with tax collection and liable for failing to do so. Not surprisingly, Amazon's home state is willing to look the other way when it comes to the billions it would owe Washington in back taxes, focusing instead on destroying small out-of-state business to further Amazon's agenda of taking no responsibility for sales tax and keeping a competitive advantage for themselves. While the advantage Amazon enjoyed for many years finally ended in 2018 for WA, the question needs to be asked why it wasn't closed years before, and why Amazon isn't being forced to face the music for evading black letter law for over a decade, costing WA residents billions.

When small businesses use online marketplace platforms, such as Amazon along with Amazons FBA service, these platforms provide a variety of services, including storage, shipping, payment processing, customer service, marketing and returns. This makes the marketplace owner the customer's main interface. Customers are bound by the marketplace owner's contractual terms and conditions, not the third-party marketplace sellers'—who lack necessary privity of contract with the retail customers.

In fact, the Supreme Court has addressed the topic of inventory placed in a state by another party—noting lack of purposeful availment and the placement of retail goods into the stream of commerce, does not establish nexus under the Due Process Clause.

About Online Merchants Guild
Online Merchants Guild is a trade association for online merchants which advocates on behalf of online merchants, ensuring have a meaningful say in the future of ecommerce policy, and by promoting and defending the constitutional rights of its members. The organization seeks to develop unity and a common voice for the diverse group of merchants who sell in the broad online marketplace, and promotes legislative processes that provide uniformity and clarity to ecommerce law.