Massachusetts' Internet Sales Tax Legislation; Amazon Tax or SST Adoption? What Proposed Legislation in Massachusetts Will Really Do
Massachusetts Legislative Update:
Will Massachusetts residents soon be paying sales tax on their Amazon
purchases? Should Amazon already be collecting
Massachusetts sales tax?
If you've been following the media reports about how
Amazon’s recent “expansion” in Massachusetts gives the company nexus, or how
Massachusetts may soon be enacting an “Amazon Law”, then you may think that
Amazon should either be collecting Massachusetts sales tax already or soon will
be.
But much of what has been reported is less than accurate!
Now before I jump into clarifying Amazon’s recent activity
in Massachusetts (and whether that activity creates nexus or not) and what
proposed legislation in Massachusetts will really do, I’ll add
that this story was of particular significance to me because I happen to be a
Massachusetts based consultant. And so, I’ve been closely following this
development – and have read one too many stories that have
reported less than accurate information.
Does Amazon Already Have Sales Tax Nexus in
Massachusetts?
Several months ago media reports started surfacing about
Amazon’s plans to open a facility in Cambridge, Massachusetts in early 2012.
Many of these reports were incorrectly reporting that
Amazon’s expansion into Massachusetts would translate into a sales tax
collection requirement for the company. (See “Events converge to sharpen focus on Internet sales tax”,
Boston Business Journal, 3/23/12) But this new “Amazon” facility
would not be part of Amazon.com, Inc., the parent company, nor
would the facility be part of either of Amazon’s U.S. retail entities –
Amazon.com LLC or Amazon Digital Services, Inc. This new facility would
house the employees and operations of an Amazon software development
subsidiary, a2z
Development Center, Inc., a separate legal entity.
Under Massachusetts current law, a2z Development Center, Inc. would not
create nexus for Amazon’s on-line retail business.
Then, in mid-March of this year Amazon announced it would acquire 100% of the
outstanding shares of Kiva Systems, Inc., a Massachusetts based developer and
manufacturer of warehouse inventory movement robots.
This $775 million acquisition would be Amazon.com, Inc.’s second largest acquisition to date (Zappos.com,
is its largest) and one seen as a major move to supplement its rapidly
expanding fulfillment center network. (Amazon spent $4.6 billion last year on
warehouses in 2011, its largest operating expense for the year.)
Acquiring this Massachusetts based robotics company only
intensified the chatter that Amazon had established a physical presence in
Massachusetts and should begin collecting sales tax. But acquiring all of
the shares of Kiva Systems, Inc. would mean that Kiva would be a 100% owned
subsidiary. Unless Amazon took additional action, such as merging Kiva
into one of Amazon’s retail entities, Kiva Systems, Inc. would remain a
separate legal entity, which again, would not create nexus for Amazon’s on-line
retail business.
The Massachusetts Main Street Fairness Coalition Is
Launched
But this chatter quickly grew to a roar following the April
9th launch of The Massachusetts Main Street Fairness Coalition, a
coalition of Massachusetts retailers, local officials, labor unions, trade and
business associations and individuals who argue that “Amazon has arrived in the
Commonwealth”. According to the Coalition, “locating a facility in
Cambridge and purchasing a robotics firm in North Reading” established a
“physical presence for Amazon in Massachusetts requiring them to register with
the Massachusetts Department of Revenue to collect and remit Massachusetts
sales tax on purchases made by Massachusetts residents”. Not
surprisingly, the media frenzy took off, not just in Massachusetts but on a
national level too. The media's message? Amazon was once again skirting
its sales tax collection responsibilities in yet another state. (The
April 9th press release launching the Coalition is reproduced
at the end of the press coverage listing on the Massachusetts Main Street Fairness Coalition webpage)
Now, I sympathize with Coalition and admire its tenacity. On
May 31st the Coalition even sent a letter to the Massachusetts Department of
Revenue (DOR) Commissioner practically demanding that the DOR hold Amazon
responsible for collecting the 6.25% sales tax. The letter even cites the
"opinion" of Rich Jones, a leading Massachusetts state tax attorney.
(See my commentary under "Sylvia's Summation" below to see
what Mr. Jones really had to say!)
The letter also cites several other states that have
entered into "deals" with Amazon to begin collecting sales tax and
strongly suggests that Massachusetts should pursue its own deal. (However,
several of the states mentioned in the Coalition's letter have enacted
laws that allow those states to demand Amazon to begin collecting sales tax.)
But neither the Cambridge facility of a2z Development
Center, Inc. nor the North Reading headquarters of Kiva Systems, Inc.
automatically create sales tax nexus for Amazon’s on-line retail entities.
Now, if either a2z Development Center or Kiva Systems acted as agents for
the retail side of Amazon’s business - let’s say that customers could return
their Amazon purchases to the Cambridge office of a2z Development or to Kiva's
Massachusetts headquarters - then the Coalition might have an
argument. But it is highly unlikely that either the
R&D subsidiary or robotics manufacturer, has acted or will act as agents
for Amazon’s retail entities.
Yes, I hate to tell the Coalition this, but under current
Massachusetts law – their argument is not valid!
Amazon does not currently have a sales tax collection responsibility in
Massachusetts. But could things change in the future? Definitely!
Massachusetts' Proposed Legislation
I’m not surprised that there's been some confusion
about what legislation we may soon see passed in
Massachusetts. This is because there have been four separate bills introduced
during the current 2011-2012 Massachusetts Legislative session that could
have impacted internet sales. But let’s look at what’s actually occurred
in the Massachusetts legislature to date, and what the only Massachusetts
proposal that stands a chance of passing really says.
If you’ve read some of the media coverage that's been
circulating in the last 18 months or so about the various Massachusetts
"Amazon" proposals, you may have read something along the lines of
this statement, “a Massachusetts bill now under consideration on Beacon Hill
would also expand the definition of physical presence to include affiliates.”
(See “Amazon’s move to Cambridge allows Massachusetts to begin
collecting sales taxes sold to state residents”, The Republican,
3/24/12)
Before I continue, I'll point out that back in January
of 2011, there were three “click-through
nexus” bills introduced in the Massachusetts legislature; H.1731, An Act
to Protect Main Street Retailers and Promote Sales Tax Fairness in the
Commonwealth, S.1450, An Act Applying the Sales Tax to Certain Retail
Sales Over the Internet, and S.1554, An Act to Protect Main Street Retailers
and Promote Sales Tax Fairness in the Commonwealth. All three of these
bills initially progressed through the legislative process, and ultimately all
three were the focus of a public hearing on April 7, 2011. But all three of
these proposals, which would have changed the definition of a vendor to include
remote retailers with in-state marketing affiliates, went nowhere after the
April 7, 2011 hearing. (And yes folks, I’m talking 2011, not 2012.) And
so, for a while there, much of the media was reporting that Massachusetts could
soon have an “Amazon Law” on the books.
But there was one more related bill, H.1695,
An Act to Promote Sales Tax Fairness for Main Street Retailers, introduced
in January 2011 which was also discussed during the same April 7, 2011 hearing.
However, unlike the three “click-through
nexus” proposals, H. 1695 continued its journey through the legislative
process and on 8/15/11, accompanied a new bill draft, H.
3673, also entitled, An Act to Promote Sales Tax Fairness
for Main Street Retailers. And so, H. 3673 is the only proposal
under serious consideration by the current Massachusetts legislature.
H. 3673: The One Massachusetts Proposal That Could Actually
Pass
But guess what? H. 3673 is not a
“click-through nexus” proposal. Nor does H. 3673 contain expansive
affiliate nexus language.
In other words, H. 3673 says absolutely nothing about nexus
being created if a remote seller contracts with an in-state party who post
web-links to the remote seller’s retail site. Nor does H. 3763 contain language
that would attribute nexus for sales tax collection purposes to a remote retail
entity simply because related or commonly owned entities operate in the state.
(Note: Because click-through nexus deals with a remote seller’s contractual
relationship with in-state marketing affiliates, “click-through” or
“web-linking” nexus is sometimes also referred to as “affiliate nexus”.
Though in a legal sense, affiliate nexus means nexus by virtue
of common ownership of entities operating in the nexus state.)
So how will H. 3673 “promote sales tax fairness for Main
Street Retailers?” What exactly does H. 3763 do?
If passed, H. 3673 will authorize the Commonwealth to
adopt the Streamlined Sales and Use Tax Agreement (“SSUTA") and will grant
the Commissioner of Revenue the authority to promulgate rules and regulations
consistent with the SSUTA. (See SECTION 22, H. 3673)
That’s right! Massachusetts could very well soon become a
Streamlined Sales Tax (“SST”) member.
And in anticipation of moving towards SST membership, H.
3673 also addresses the many associated issues such as approval of an amnesty
period (SECTION 7A., H. 3673), use of Certified Service Providers (SECTION 6,
H. 3763), monetary allowances for sales tax collection (SECTION 8, H. 3673) and
use of an SST approved exemption certificate (SECTION 6(3), H. 3673).
Will this legislation actually pass? It
quite possibly could! H. 3673 was voted on favorably by various
House Committees and by the Joint Rules Committee. On June 4, 2012, H.
3763 once again moved forward when it received an “ought to pass”
recommendation by the House Rules Committee and was referred to the House Ways
and Means Committee for further consideration. (See the bill’s legislative history.)
But even if H. 3673 does pass and
Massachusetts does become a SST member state, Massachusetts
would only be able to able to require remote (out-of-state) retailers, like
Amazon, to collect Massachusetts sales tax if the Main Street Fairness Act (H. 2701/S. 1452) or the
Marketplace Fairness Act (S. 1832)
is enacted. Recall, that these are the two federal proposals that would
grant SST full member states immediate collection authority - the other federal
proposal, the Marketplace Equity Act (H. 3179) does not look to the SSUTA as it
has its own guidelines that states must comply with. (Click here for a listing of my SalesTaxSupport.com blog
articles and latest whitepaper on the federal remote seller proposals.)
In other words, passage of H. 3763 alone would
not give Massachusetts immediate authority to require Amazon, or any other
remote retailer that lacks sales tax nexus to Massachusetts, to begin
collecting the Commonwealth's sales tax. This authority would only
come about if either the Main Street Fairness Act or the Marketplace Fairness
Act is enacted by the end of 112th U.S. Congressional session
and Massachusetts moves to full-member SST status.
Sylvia’s Summation
So there you have it – what’s really happening
in Massachusetts!
Now as I mentioned above, I mean no disrespect to the
Coalition - the reality is I’m much more likely to shop at a local retailer
than I am on-line. And I do sympathize with local retailers who feel like
their stores have become “showrooms” for on-line shoppers. But the law is
the law, and to argue that under current law a2Z Development, Inc. and Kiva
Systems, Inc. automatically create nexus for Amazon’s retail entities is
incorrect! As I mentioned above, neither of these entities act as
agents for Amazon’s retail entities. Plus, I'm convinced the
Coalition wasn't even considering an "agency" connection - they
simply believe activity by any Amazon legal entity means
"Amazon" as a whole has nexus in Massachusetts.
But here's another point I need to make. I also happen
to know Rich Jones, the leading Massachusetts state tax attorney cited in the
Coalition’s letter and he is without a doubt, a highly respected authority on
Massachusetts taxation. I also know that the Coalition did not specifically
seek his advice when authoring their May 31st letter to the
Commissioner, but simply incorporated statements he made during an interview
with the New England Cable News (NECN) network. As a matter of
fact, Mr. Jones commented on this development in a LinkedIn discussion and noted that he was
"surprised to be quoted in (the Coalition's) letter" as he
"never had any interaction with the Coalition". Mr.
Jones' LinkedIn comment further states, "I am curious as to why the
Coalition used my opinion to support its premise that Amazon is currently
'legally required to collect and remit state sales tax'. I certainly never
reached that conclusion about Amazon in particular"......"if
Amazon's physical presence in Massachusetts is through corporate affiliates
that are not acting as agents for Amazon.com, Inc., then my conclusion would be
the opposite of what the Coalition suggests."
Although I realize what the Coalition attempted to do (cite
the opinion of an expert to support their argument) I find it disconcerting
that his comments were used without his approval as the letter
gives the impression that Mr. Jones’s counsel was specifically requested.
So are the Cambridge office of a2z Development Center Inc.,
and the acquisition of Kiva Systems, Inc. enough to require Amazon to begin
collect sales tax already? Again, I say absolutely not! But could
things change in the future? Absolutely! But not as quickly as some
folks might think. At this point, how quickly would depend on what
happens with the federal remote seller proposals – proposals which are
currently all stalled “in committee”.
But as far as H. 3673 goes - do stay tuned! The current
formal session of the Massachusetts 187th Congress ends on July 31st, which
means Massachusetts could soon begin its journey towards full SST
membership.
Missed my last post? Catch it here: "Massachusetts' Revised Guidance on Groupons & Sales Tax; An 'About Face' or Simply a More Reasonable Approach?"
Follow me on twitter at: @SylviaDionCPA
View my profile on LinkedIn at: http://www.linkedin.com/in/sylviadioncpa
Visit my company website at: www.sylviadioncpa.com
***********************
The above post is an expanded version of my July 3, 2012 post, "Amazon Sales Tax Nexus in Massachusetts? (Absolutely Not!)", which I authored for SalesTaxSupport.com's Sales-Use Tax Issues, Ideas and Insights blog. See side bar and my "Contributions to Other Blogs and Websites" page for more about my contributions to SalesTaxSupport.com.
Comments
Post a Comment
Thanks for your comment!! Relevant comments are sincerely appreciated! However, that comments which are suspected spam, including comments which seek to sell a product or have no purpose other than to drive traffic to an unrelated site will be flagged as spam and deleted.