Brief of Amici Curiae Tax Law Professors Tessa Davis and Clint Wallace in Support of Respondent (SC DOR)

Abstract

In 2016, Amazon decided that it was not responsible for collecting and remitting South Carolina sales and use tax for sales it made to South Carolina residents through its website if those sales were supplied by third-party merchants. The South Carolina Department of Revenue (DOR) was promptly alerted to this practice by confused Amazon customers who noticed some of their Amazon purchases did not include sales tax, and after an examination the DOR determined Amazon owes tax liability plus penalties and interest of over $12 million for the first quarter of 2016. Amazon continued the practice at issue here into 2019. In the pending litigation, Amazon asserts that South Carolina's 2019 marketplace facilitator legislation, which followed the U.S. Supreme Court's Wayfair decision, was necessary to enable South Carolina to require Amazon to collect sales tax on all in-state transactions completed through its website, and that the DOR’s position that Amazon was responsible for collecting sales tax for all transactions on its website--including those supplied by third-party merchants--amounts to retroactive taxation.

Amazon misinterprets the relevant law and ignores the historical development of federal constitutional jurisprudence on nexus and South Carolina’s sales tax statutes. Further, Amazon’s assertions are contrary to sound tax policy and administration.

We focus on dispelling three particular misconceptions in Amazon’s arguments. First, contrary to Amazon’s and other Amici’s assertions, the 2019 legislation was not necessary to enable South Carolina to impose sales tax obligations on Amazon because Amazon’s decision in 2011 to establish physical nexus in the State empowered the State to impose those obligations. Second, the formality of Amazon’s corporate organizational structure does not shield it from sales tax obligations for all sales on its website. Third, failure to collect sales taxes from Amazon would create a tax subsidy that benefits Amazon to the detriment of local sellers who compete with Amazon; that result was unintended by the General Assembly, unexpected even by Amazon when it established a physical nexus in South Carolina, and it violates established principles of equitable and even-handed tax administration.

Keywords: tax law, sales tax, use tax, sales and use tax, amazon, retroactive, Wayfair, Quill, nexus, state and local tax, South Carolina

JEL Classification: K34, H25, H26, H20, H71