The Commonwealth of Pennsylvania Graphic

On Friday, the Online Merchants Guild filed suit in the Middle District of Pennsylvania against Pennsylvania’s Department of Revenue (“DOR”).

  • The lawsuit challenges recent actions taken by the DOR against Amazon sellers to collect past sales taxes that Amazon, not the individual merchants, owes.
  • The lawsuit also challenges the assertion that Amazon choosing to store a small business owner’s inventory within Pennsylvania or any other state, is a sufficient presence in the state to allow the state to demand income tax.
  • Taken to its logical conclusion, a small business owner shipping 30 items to one Amazon facility in their home state and redistributed all over the country in Amazon’s facilities could result in a tax compliance obligation for the small business that is on par with Amazon itself, who has hundreds of tax workers at its disposal.
  • The backstory that led to the filing of this lawsuit is the DOR’s favoritism toward Amazon, which resulted in a nine- or ten-figure subsidy to Amazon over much of the last decade.

Paul Rafelson, OMG’s Executive Director described the situation as seen by the Guild and its members.

“As detailed in our complaint this is yet another example of a state bullying small businesses in an attempt to make up for the misguided policy of allowing Amazon de-facto “most favored nation” status by allowing them for years to willfully disregard their obligations to collect sales tax on items sold through their store. This overreaching pursuit of out-of-state small businesses with no connections to the state instead of the politically connected Amazon has led to violations of our members’ civil rights.

Furthermore, The DOR’s assertion that storing inventory in a Pennsylvania Amazon warehouse is sufficient to claim that Wayfair protections are not a factor represents at best a gross misunderstanding and at worst a purposefully self-serving interpretation of how the Amazon FBA marketplace functions. FBA merchants have no control over which warehouse(s) Amazon chooses to store inventory in. Therefore, using the fact that inventory is located within the state should not be used as justification to charge out-of-state businesses with Sales and/or Income taxes.

The sudden push to register raises many questions. Especially since, in 2018, Pennsylvania passed a law clarifying that Amazon was the tax collector. But as the Guild alleges in their complaint, that was always the law with respect to FBA. The complaint highlights how this trend of bullying small out-of-state businesses, instead of making Amazon pay the back taxes it owes, relates back to the dysfunctional state tax incentive systems Amazon has notoriously exploited for years, most famously when it was shopping around its famous “HQ2” deal.

People thought they knew the extent of the incentives being offered Amazon over the last decade in their state. What they don’t know is that billions of dollars of sales tax was avoided because states knew Amazon needed that to happen in order to maintain their advantage over in-state local businesses. These local businesses were sold-out by their own politicians who allowed Amazon to simply refuse to collect sales tax rather than look out for their constituents’ best interests.

Now these states want to cover some of their losses by going after small out-of-state businesses, with complete disregard for the unconstitutionality of said actions. This is a clear civil rights violation impacted hundreds of thousands of small businesses trying to eek out a living. It is simply easier to use threats to extract tax revenue from small businesses than go up against Amazon a company whose entire business model was based on tax avoidance from the beginning as evidenced by the following comment made by Jeff Bezos to Fast Company back in 1996

“I even investigated whether we could set up on an Indian reservation near San Francisco. This way we could have access to talent without all the tax consequences. Unfortunately, the government thought of that first”

While I’m disappointed that yet another state is trying to reach across state lines into FBA merchants’ pockets I am very proud of our members for coming together in such a short timeframe to make challenging this overreach in court possible. We look forward to continuing to fight on behalf of our members as well as the entire FBA merchant community”

OMG will be represented by the following attorneys in this matter:

  • David Wilk of Lepley, Engelman, Yaw & Wilk (Williamsport, PA)
  • Aaron Block of the Block Firm, LLC (Atlanta, GA)
  • Paul Rafelson of Rafelson Schick, PLLC (Boca Raton, FL)

A full copy of the complaint filed on February 26th can be found by clicking here. The Guild has a Facebook Group here and updates members on legal actions they take on behalf of Amazon and other marketplace sellers.

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