Today will be the last day for Amazon consumers to avoid paying state or local California sales tax. Depending on where you live, the sales tax can be significant at 7.25% to 9.75%. Will Amazon implement this policy for other states too?
How does sales tax work for out of state sellers?
Technically, forty five states have rules in place which requires purchasers to remit sales tax or what is commonly referred to as a “use tax” for out of state purchases. For instance, if I live in California and purchase a product online from a seller located in Washington, that seller isn’t required to collect sales tax if they have no physical presence in my state. However, I’m supposed to send the appropriate sales tax for the purchase to my state. As you might expect, very few people go through the trouble of doing this because it’s not enforced. The law is slightly different in California as certain big sellers like Amazon must collect sales tax. Specifically, under current California sales tax law, any out-of-state retailer with tax nexus is supposed to be collecting and remitting sales tax on goods purchased. This rule only applies to businesses that sell more than one million dollars of merchandise annually in California or generate sales of more than ten thousand annually through California affiliate sites. Amazon’s latest action to collect sales tax from California purchasers is another sign that the online sales tax landscape is changing.
The reaction from other out of state internet sellers
There are several out of state internet sellers that will use Amazon’s sales tax policy change as leverage in their marketing materials to California buyers. Those that sell the same or similar products to Amazon, could gain market share by marketing that they do not collecting sales tax. The state will be following those marketing tactics to keep all sellers accountable, but it may be difficult to track.
What about other states?
Amazon already has started charging sales tax for purchasers in seven other states, including New York and Texas. They have plans to do the same with several other states as they would like to expand the number of distribution centers they have across the country.
More questions? Browse answers or ask your state sales tax questions online.
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