South Carolina’s Amazon Fight

State’s revenue department goes after online retailer for past due sales tax …

Back in August, this news site wrote on the South Carolina Department of Revenue (SCDOR)’s ongoing battle with online behemoth Amazon.  The agency is suing the mega-retailer over its failure to collect sales tax on third-party sales made to South Carolina residents using its global platform.

How much money is at stake here?  Potentially hundreds of millions of dollars …

For those of you who’ve already forgotten, Amazon received an exemption on these payments as part of a deal it cut with state lawmakers back in 2011 – when it was in the process of locating a new fulfillment center in the Midlands region of the state.

The debate over this tax break was contentious – and rife with allegations of corruption.

Former S.C. governor Nikki Haley ultimately permitted the tax break to become law … even though she rebuked it publicly.

“I knew it was bad policy,” Haley said in early 2011 after the S.C. House of Representatives initially rejected the deal. “By allowing Amazon to get a tax break – when you are not giving it to any other business in our state – destroys what I am saying and immediately disputes everything that we say South Carolina is.”

We agreed with Haley.  This website opposes corporate cronyism on principle – no matter how many jobs it creates.  For every “winner” there is a “loser,” and we simply don’t believe tax dollars should be injected on one side or the other.

Lawmakers reconsidered their objection, though, and ultimately approved the tax break.  And Haley caved rather than stand on principle.

Under the terms of its 2011 deal with the state, Amazon was allowed to forego collecting sales tax through January 1, 2016.  It did begin collecting the tax on the specified date – but only on select items (like the sale of Amazon Prime memberships).

As a result, SCDOR has accused the company of selectively collecting and remitting the tax – depriving state government of tens of millions of dollars.

The tab is growing, too.

“(SCDOR) projects Amazon could owe the state in excess of $500 million in unpaid sales and use taxes by the conclusion of this litigation,” a motion (.pdf) filed last month in connection with the case noted.

That’s some serious cheddar …

(Click to view)

(Via: iStock)

Our view on all of this?

“We loathe any measure that compels already cash-strapped consumers to cough up any more of their money to government,” we wrote at the time.  “Having said that, Amazon has built its empire in no small part by leveraging tax advantages unavailable to traditional brick-and-mortar retailers.”

Many of these brick-and-mortar retailers are small businesses struggling to survive as Amazon exploits its gift-wrapped advantages.

One of those small business owners is Eric Bikas, a former member of the S.C. House of Representatives who led the fight against the Amazon tax breaks.

“I suspected that Amazon would refuse to pay eventually when they were required to,” Bikas told us this week. “Their whole business model is leveraging tax advantages that the rest of us cannot.”

Bikas called the Amazon tax breaks “a spit in the face to all the folks out there working eighty hours a week in their business, praying that all of (the money for) payroll is in the bank on payday then waking up to a nasty letter from SCDOR when their sales tax is a day late because they withheld it a few days for cash flow purposes.”

“You know the same people who now have to pay for the court cost to fight Amazon,” Bikas added.

We concur …

This is a tricky issue for us to cover, though.  As for future tax breaks like this we will obviously continue to oppose them – but as we’ve stated repeatedly we don’t fault companies for crony capitalism, we fault the politicians who give our money away.  Corporations are always going to take what’s handed to them.

Blame the government!

Also Amazon brought the jobs it said it would bring – and consistently adds thousands of seasonal positions in addition to its year-round workforce.

Still, a deal is a deal …

We’ve consistently argued that South Carolina’s sales tax is too high, but Amazon agreed to pay it – and it is currently in violation of that agreement to the tune of tens of millions of dollars (at least).

Bigger picture?  South Carolina needs to pursue sales tax reform that lowers the overall burden for consumers while providing fairness for all retailers – large and small, online and brick-and-mortar.

From our perspective, every tax reform must be approached with the twin objectives of empowering the consumer economy and enhancing fairness.



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