As it has in other states, Amazon.com Inc. has refused to collect sales tax in Pennsylvania, contending that, despite operating physical facilities in the state, it was not required to collect tax under existing law. But that was before the state clarified in a tax bulletin last year that the law covered Amazon as well as other retailers and set a Sept. 1, 2012, date for compliance.
The Pennsylvania Department of Revenue issued a bulletin on Dec. 1, 2011, stating that all retailers would be required to collect sales tax on purchases by Pennsylvania residents if the merchants maintain any of a long list of physical operations in the state. They include distribution and fulfillment centers, warehouses, sales representatives or stores. The bulletin also clarified that such operations came under the state’s sales tax collection law whether or not they were part of a subsidiary owned by the retailer.
In effect, the bulletin asserted that the Pennsylvania law falls within the guideline set by the U.S. Supreme Court that says states can mandate sales tax collection only from retailers that maintain an in-state physical presence. The Pennsylvania law applies to all retailers regardless of annual sales, a spokeswoman for the revenue department says. She adds that the department had initially set a deadline of Feb. 1, 2012, to comply with the clarified law, but agreed to extend it to Sept. 1 after a large number of online retailers requested additional time to prepare for it.
Amazon, though it confirmed that it would begin collecting sales tax in Pennsylvania this Saturday, declined to say specifically why it agreed to abide by the law following the notice of clarification. The retailer, which operates several fulfillment centers in Pennsylvania, has operated many of its fulfillment centers in the U.S. under company-owned subsidiaries. In Texas, for example, Amazon had contended it did not have to collect sales tax because its distribution centers there were operated by a subsidiary of the retailer. Texas enacted a law last year clarifying that a retailer’s subsidiaries were not exempt from rules on physical presence; Amazon now collects sales tax in Texas.
Pennsylvania’s state sales tax rate is 6%, but the city of Philadelphia adds a local tax of 2% and Allegheny County, which includes Pittsburgh, adds a local tax of 1%. The state estimates that, with the new tax collection rule, it will raise $42.8 million in tax revenue in the current 2012/2013 fiscal year from e-commerce retailers, and $67.1 million the following fiscal year, the revenue department spokeswoman says.
An Amazon spokesman says the retailer, No. 1 in the Internet Retailer Top 500, doesn’t expect its collection of sales tax to reduce its sales to Pennsylvania consumers. Noting that Amazon already collects sales tax in other areas of the U.S., he adds, “we are thriving in those geographies because Amazon has the lowest prices, best selection and fast delivery.”
The spokesman adds that Amazon continues to strongly support the Marketplace Fairness Act, which is also supported by Pennsylvania Gov. Tom Corbett, a Republican, along with several other governors. The bill, which like the similar Marketplace Equity Act has bipartisan support in Congress, would require Internet and catalog retailers to collect sales tax regardless of whether they have an in-state physical presence.
Amazon, which already collects sales tax in six states—Kansas, Kentucky, North Dakota, New York, Texas and Washington—plans to begin collecting sales tax in California next month and in six more states within the next few years. Read much more about what’s ahead for sales tax and Internet retailers in the August edition of Internet Retailer in the article “When, not if.”