South Carolina’s Supreme Court ruled Wednesday that Amazon must pay the state for uncollected sales taxes on third-party marketplace transactions, a decision tied to a dispute that began after the expiration of a five-year tax exemption. The 3-2 ruling upheld earlier decisions finding that Amazon was responsible for collecting the taxes.

The immediate case involved $12.5 million in taxes from the first quarter of 2016, the first three months after the exemption ended. Amazon had already paid that amount while pursuing its appeal. State audits also identified an additional $277.2 million in back taxes and interest covering the period from April 2016 through April 2019, when Amazon began collecting taxes on third-party sales.

Justice John Few wrote in the majority opinion that Amazon Services exercised enough control over third-party transactions on its platform to qualify as being engaged in the business of selling. Few wrote that a third-party transaction on Amazon.com could not occur without actions taken by Amazon Services.

Chief Justice John Kittredge dissented, writing that state law was ambiguous and that precedent called for ruling in favor of the taxpayer when doubt exists. Acting Justice Courtney Clyburn Pope joined the dissent.

The dispute began in 2010, when South Carolina offered Amazon a five-year sales tax exemption in exchange for commitments to create at least 2,000 full-time jobs with health benefits and invest $125 million in the state. The agreement was reached during the administration of Gov. Mark Sanford. After Gov. Nikki Haley took office in January 2011, she sought to cancel the deal, but the Legislature later approved the exemption. Amazon then built distribution centers in West Columbia in 2011 and Spartanburg in 2012.

When the exemption expired on December 31, 2015, Amazon began collecting sales taxes on items it sold directly but not on transactions involving third-party sellers using its marketplace. Amazon argued that it operated as a platform rather than the seller in those transactions. Third-party sellers could pay Amazon a monthly fee for tax collection services, but the money was sent to sellers to remit to the state.

The Administrative Law Court rejected Amazon’s position, and the South Carolina Court of Appeals later upheld that decision. The Supreme Court’s ruling affirms those earlier decisions.

The ruling comes after South Carolina enacted a marketplace facilitator law in 2019 requiring platforms such as Amazon to collect taxes on third-party sales. Gov. Henry McMaster signed that legislation on April 26, 2019. Amazon began collecting third-party sales taxes in the state on April 30, 2019.

The South Carolina Department of Revenue did not immediately provide an update on the status of the disputed $277.2 million identified in the audits. Two related cases involving that amount had been paused pending the Supreme Court’s ruling.

Amazon’s lawyers declined to comment on the decision, citing law firm policy. The company has not said whether it will seek further review.

Source: SC Supreme Court rules Amazon must pay state for uncollected back taxes | South Carolina Daily Gazette