Cindi Ross Scoppe

How South Carolina’s battle with Amazon could affect your taxes

Those Amazon boxes might all look the same to you, but the online retailers treats some of them a lot differently. South Carolina is trying to stop that, at least when it comes to taxes.
Those Amazon boxes might all look the same to you, but the online retailers treats some of them a lot differently. South Carolina is trying to stop that, at least when it comes to taxes.

AFTER ANOTHER fruitless white-shoe-buying-season in Columbia (which ends much sooner than white-shoe-wearing season), I resorted to Amazon, which removes the risk from online shoe purchasing with easy and free returns. White shoes, after all, are essential to summer — particularly when you also can’t find any fuchsia or pink or green or turquoise or lavender shoes that don’t hurt your super-sensitive feet.

I found hundreds of matches and was about to order the dozen most promising pairs when I noticed that while some of the shoes said “free returns,” some said “free returns on some sizes and colors,” and others made no mention of free returns.

It turns out that the no-free-return shoes were offered by what Amazon calls third-party vendors. Their products are purchased just like regular Amazon products, but in some cases, they don’t offer those easy and free returns.

And what does this have to do with South Carolina tax policy? (You did realize I was writing about South Carolina tax policy, didn’t you?)

Possibly quite a lot. Possibly so much that our state could finally be on the verge of plugging one of the biggest holes in our Swiss-cheese tax code — or at least the one that is expanding faster than any of the others.

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Cindi Ross Scoppe

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Even if we plugged that hole, we’d still have a lot of holes left, because together the holes exceed the whole, the result of which is that the 6 percent sales tax (up to 10 percent in some places) is about twice as high as it would be if we removed all of the holes from the whole. But if we could plug that hole, it would put the brick-and-mortar stores in our communities on a level playing field with online retailers. If we could plug that hole, then maybe we could go after some of the others.

You might recall that in order to get Amazon to build a distribution center in Lexington County, the Legislature gave it a five-year exemption from the law that requires retailers with a physical presence in South Carolina to collect state and local sales taxes on purchases by S.C. residents. That exemption ended on Jan. 1, 2016, and Amazon started taxing products that South Carolinians ordered. But only the Amazon products we ordered. Not those no-free-return shoes and other products that are offered by third-party vendors.

The Revenue Department says Amazon is a consignment store.

After a few months, the state Revenue Department asked Amazon what was going on. The company explained that it wasn’t responsible for collecting those taxes, the Revenue Department explained that it was, negotiations went back and forth for nearly a year, and in June the department filed a “determination” that Amazon owed us $9.6 million in uncollected sales taxes for the first quarter of 2016, plus $2.9 million in penalties and interest.

Amazon argues that it’s like a shopping mall: It brings retailers together under one roof, but retailers are responsible for collecting sales taxes. The Revenue Department says Amazon is a consignment store: It rings up the sale, collects the money, lets the purchaser walk out with the product and periodically delivers the proceeds to the product owners, minus its cut. It’s an analogy that’s hard to dismiss.

Now $12.4 million, or even $50 million annualized, isn’t much in a $7 billion state budget. But the sales tax is the backbone of the S.C. tax code. Online sales are mushrooming, while in-person sales are plummeting. A third of all online purchases are now made through Amazon. And more than half of Amazon’s sales involve third-party vendors.

One reason we have some of the highest sales taxes in the nation is that we do such a lousy job collecting sales taxes on this fastest-growing sector of retail.

One reason — not the only reason, but one reason — South Carolina has some of the highest sales taxes in the nation is that we do such a lousy job collecting sales taxes on this fastest-growing sector of retail.

We’ll never be able to make all online retailers charge sales taxes until the Congress changes federal law to allow it. But that problem gets a little smaller each day that Amazon gets bigger. Well, it gets smaller if we can require Amazon to collect those third-party sales taxes, since it’s the third-party vendors, more than Amazon, that are consuming an ever-larger piece of the retail pie.

The tax laws in some states don’t require Amazon to collect taxes on its third-party sales. But it seems pretty clear that our law does. Which is amazing since Amazon advocates were at the table when the law was written. Of course, those third-party sales weren’t nearly so big at that time.

Read the Senate’s most recent online sales tax bill

Unless Amazon wins in court or reaches a settlement before January, it’s probably a safe bet that it will lobby the Legislature to change the law to its liking.

It should be a safe bet that the Legislature will say no. The Senate, after all, has twice passed bills that would require retailers to collect sales taxes even if they have a far less direct connection to South Carolina than Amazon’s consignment partners.

But of course it’s never safe to assume that legislators will side with the public over the objection of special interests.

Ms. Scoppe writes editorials and columns for The State. Reach her at cscoppe@thestate.com or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.

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