Good News About Sales Taxes for Amazon Sellers
I’ve been covering sales taxes for Amazon sellers since 2012 when I began the tortuous process of registering in nexus states and trying to interpret Amazon’s bewildering spreadsheets showing sales tax collection. The cost of compliance includes money, of course, time, and the requirement to learn the very different rules for each state. Because of these costs, I’ve been very supportive of efforts by lawmakers for simplified, less expensive solutions for sellers.
Recent sales tax news from the State of California is great news for online sellers! California just passed a law mandating that Amazon and other online sales site marketplaces collect and submit state sales tax on behalf of third-party sellers. That law went into effect April 1 (no fooling!).
In making this change, California joins 12 other states that also require the big online sales sites to collect tax on in-state sales on behalf of small sellers. Those states are: Alabama, Connecticut, District of Columbia, Iowa, Minnesota, Nebraska, New Jersey, Oklahoma, Pennsylvania, South Carolina, South Dakota and Washington.
Just as important for online sellers with their own sites/off-platform operations, California raised the sales tax liability threshold for sellers located outside of the state paying tax on sales within the state. Now, online sellers outside the state that sell into the state pay no sales tax unless their in-state sales exceed $500,000 a year.
This is huge because, again, it’s very easy.
The old limits were 200 transactions a year, or $100,000. That is actually a very small retail business operation, so a lot of sellers were affected with onerous compliance burdens. With the new higher limit, mom-and-pop sellers with their own websites won’t have to deal with compliance headaches until they’re big enough to afford it.
The big lesson here for online sellers? California didn’t take this legislative step out of the goodness of its heart. Collective action by a small group of online sellers helped bring this about. Divided, we get nowhere. United, we make huge progress. This is a real win for online sellers.
How Did Sellers Get Their Voices Heard on Sales Tax?
I first met Paul Rafelson of the Online Merchants Guild two years ago at PROSPER, a major trade show for online sellers. I confess, I was skeptical. How on earth could a small group of volunteers make a real difference in the life of online sellers?
Yet I believed in what he was trying to do. I thought that the first issue that he was going after, online sales tax, was an important one, and eGrowth Partners signed up immediately. Since that time, I’ve worked with Paul in a couple of capacities, both to promote the group and to participate in the group’s efforts.
OMG’s most recent victory may be one that you missed, but it was astonishing. Let me take a step back and set the stage. Before this new law went into effect, the Golden State was penalizing online sellers located outside of the state of California heavily for not paying sales tax in California. There were some very well-known cases in which sellers were being assessed huge amounts of money that they supposedly owed California.
Paul and the Online Merchants Guild wanted to propose a different solution—one that would benefit all parties. It would benefit California sales tax revenue collections. It would benefit benefit online sellers as well. Paul teamed up with a local law firm for the California lobbying effort.
They reached out last fall and asked me to be an expert witness if they needed to go to testify. We also discussed the issues that we thought were important to sellers and those that we thought would be important to the state of California. My primary contribution? I reminded them to include women and minority business owners. It’s politically hard to vote against this subset of business owners.
Amazon is the great leveler and glass ceiling breaker for third-party sellers. Amazon doesn’t care what color or gender you are. If you have a product that people want to buy, you’re going to make money, and the same rules apply to everyone. There are a lot of minority and women-owned businesses selling on Amazon, and so the OMG made that part of a very persuasive argument.
They also focused on fairness. What is important to California is fairness to the retailers inside California. State officials’ and legislators’ perception was that sellers outside of California had an advantage over sellers inside California because they didn’t have to collect sales tax.
From Lawsuit to Law in Four Months
I don’t know how much of an impact paying sales tax makes on Amazon buyer decisions, but it definitely was a point that was important to the state of California. Paul’s team filed an emergency injunction in the state of California in (December? January?) 2019 insisting the state had to act immediately. It would be irresponsible not to, and they were losing millions in sales taxes by not acting. The lawsuit was filed on behalf of California online sellers whom the team sought out as supporters and examples. While it was filed on behalf of California sellers, we all knew that this would be a tremendous benefit to all online sellers.
This approach spurred action. The emergency injunction was put aside because the state promised the issue would come to a vote this spring. Paul and his team worked with California Treasurer Fiona Ma. She was on board with their proposal 100 percent. Take a look at the letter she wrote to California Gov. Gavin Newsom. Parts of that letter match word for word the arguments that the Online Merchants Guild made to her.
A lot of invisible, behind-the-scenes work went into this letter. Note when Fiona Ma talks about the price advantage that outside retailers have. The Online Merchants Guild crafted those messages to help officials and legislators understand that this was a problem for online California retailers.
The guild had women and minority business owners ready to talk about how Amazon was the great leveler. Experts like me were ready to talk about how this affects the entire community of online sellers. OMG is a professional group even though it’s small.
Amazon, eBay and other marketplaces supported the law. State lawmakers fast-tracked the legislation. This shows you that government can work for people. It makes a lot of sense to support small business owners. From the Small Business Administration’s perspective, 99.7% of all businesses are small businesses. So, whether you’re selling $100,000.00 a year online or you’re selling $38.5 million, you’re a small business, and this new law can help you.
Another California Sales Tax Wrinkle
This is how the legislative sausage gets made, my friends. You figure out how to appeal to the interests of officials and lawmakers, while representing your constituent’s views. You find champions and educate them. They take your research/arguments and present them. They may not mention your organization’s role when the accolades come in (LOL). Most importantly to us sellers, our voices were heard, and our efforts got something important done in the state of California. The fact that Amazon jumped on board was astonishing given their previous stance on sales tax (over my dead empire…). I commend them for standing up for sellers. The other big marketplaces did, too, FYI, but Amazon stepped up first.
The more cynical among you might note that it was inevitable after the other 12 states’ laws, and that Amazon wanted to be on the right side of this issue from a PR stance…but that’s the point. Lobbying is about getting all the important decision makers together and hammering out deals and compromises. It’s about showing them how your proposal will benefit them and the people they answer to.
Now that you see that lobbying can work, I hope you will join the Online Merchants Guild. Sales tax is a big issue, and we’re not done yet. The California Department of Tax and Fee Administration is now pursuing three years of back sales taxes from online sellers, even though their sales tax obligations were a confusing mess until this recently passed new law (A.B. 147) sorted it all out. There are still the other 30+ states and, possibly, a federal solution.
Sales tax is not the only issue that OMG will lobby for, either. It is just one of many issues important to online sellers. All sellers who have an issue they think the OMG should pursue can join the organization and make their voices heard. There’s a lot of unfairness out there, and the states and big companies have a lot more resources than we do.
We will not always win, but one of the factors in our favor: numbers. There are millions of online merchants. The latest guesstimate is that there are more than 3 million sellers on the US platform – and that’s just Amazon. When you add in all the sellers with their own sites, eBay sellers, etc., the number could be quite large. It’s like when the AARP has an issue. Congress listens because it has so many members and older Americans vote far more often than any other age group.
The OMG isn’t large right now, but it does work for the millions of retail sellers online. I strongly encourage merchants to join and to support it because it’s going to allow your voice to be heard.
Make a Difference
In addition to joining, your stories can help the next time OMG is lobbying in front of the state or in front of Congress. Individual stories really make lawmakers and others understand what is going on in a way that statistics and white papers can’t.
Think back to the recent Facebook Congressional hearings. Clueless senators asked Mark Zuckerberg how Facebook makes money. He took a moment to compose himself and replied, “We sell ads.” That just shows you what we’re dealing with here. Legislators in Congress and in the states simply do not understand our world. Telling them our stories is the only way they’re ever going to understand it enough to enact laws that help us.
I’m going to continue to cover what the Online Merchants Guild is doing over time. I’m going to continue to encourage sellers to join it. And as they come up with new issues or go to new states, I’m going to ask sellers to step up and be part of it. Your voice will make a difference.
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NEWS FROM EGP
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