Short Summary: In this post, we decode a cryptic email that Amazon sent to merchants as Amazon’s attempt at an answer to Illinois sales tax law. Effective January 1st, 2020, Amazon will be collecting and remitting Illinois state sales tax. However, sellers are still responsible for the local Retailers’ Occupational Tax until Amazon updates their systems.
Amazon Sent One Crazy Sales Tax Email to Online Sellers
Here is what it means.
On January 1st, 2020, Amazon sent a confusing email to its online sellers informing them that, moving forward, they would be handling sales tax on all merchant sales on their platform. Except, this isn’t really the complete story. In fact, this is an incomplete answer from Amazon to address Illinois sales tax law (and by the way, you’re going to have to pay some out of pocket for it too).
Sales tax (frequently referred to as Use Tax) in Illinois is unique in that there is typically a state tax and a local tax due. The local tax is commonly referred to as the Retailers Occupational Tax (ROT).
Illinois marketplace facilitator law is unique in that it requires online merchants to facilitate the state tax, but not the local Retailers’ Occupational Tax (ROT). This means that merchants are still responsible for submitting the ROT directly to the state.
That doesn’t sound so bad. What’s the big deal?
Amazon’s answer to Illinois sales tax law is a big deal and here’s the kicker… Amazon’s systems cannot currently calculate and collect the local ROT on your behalf at checkout. This means that YOU are technically responsible for paying the ROT to the state out of your own pocket. Amazon’s systems cannot currently collect the ROT when a sale is made on their platform.
Yes, you read that right. Amazon sent an email saying they are screwing their merchants and the merchant will likely need to pay out of pocket for this action. Is this an intentional act of malice on Amazon’s part? Unlikely. Let’s not mistake malevolence for incompetence.
But bad policies which are rolled out that cost merchants their hard-earned money, regardless of motive, are still BAD.
What Are Your Options When Dealing with Amazon’s Crazy Policy Regarding Illinois Sales Tax?
You effectively have two options to address Amazon’s answer to Illinois sales tax law:
- Pay for the Retailers’ Occupational Tax (ROT) out of your own pocket, since Amazon can’t currently collect it on your behalf.
- Prepare your returns to reconcile based on the tax that Amazon collected, hoping that you don’t get audited (and if you do get audited, be prepared to point the finger at Amazon).
Unfortunately, there’s not a clear winner here. On one hand, you pay money out of your hard-earned bank account. On the other, you take the risk of getting hit with penalties and interest down the road. Neither option seems like a good choice.
You can make the argument all day that it is Amazon’s responsibility to collect sales tax on your behalf (and we agree). However, the statute was written so that it is not Amazon’s responsibility to collect the ROT for you. In fact, the statute specifically contains a “hold harmless” provision so that if Amazon did collect the ROT on your behalf, and it was the wrong amount, they wouldn’t get in trouble (see Section (b)(1)).
This is crazy! Someone should sue Amazon!
We agree. This is just another example (in a long list) where Amazon is taking advantage of merchants and having them foot the bill. I find it hard to believe that any business would take advantage of its partners in this way.
At this point, the only recourse you have is suing Amazon directly or filing a class-action lawsuit. It’s an uphill battle, but we’re rooting for you.
Are you sick of all this crazy sales tax mess and ready to offload the stress and hassle to someone else? Check out our Done-for-You Sales Tax service.
Here’s a Copy of the Letter That Amazon Sent to Online Sellers Regarding Illinois Sales Tax Collection
“Earlier today we sent to you a notice about marketplace tax collection for three states beginning January 1, 2020. This follow-up communication is regarding legislation rules specific to the Illinois use tax and retail occupation tax (ROT), how the rules apply to your Amazon orders, and the possible impact to your Illinois tax obligation.
All sales into Illinois will be subject to state-administered use tax or ROT. However, Amazon will not collect or remit ROT on seller orders. As a result, Amazon will calculate, collect, and remit (as the marketplace facilitator) state use tax all orders.
If ROT is the appropriate tax rate for the order, you may continue to have an obligation to remit the ROT even though you cannot calculate and collect the full ROT rate on your Illinois orders through the Tax Calculation Service and Amazon will remit the use tax collected on all orders.
We are notifying you since these are non-standard rules for marketplace tax collection, and we want you to be able to prepare for any impact this new law may have on your business.
You can identify your orders shipped to Illinois and the tax amount calculated, collected, and remitted by Amazon using your Payments Date Range Report. This report can be sorted by state and city. Specific tax calculation details will be available in your Marketplace Tax Collection report. For additional information about your reporting options, see the FAQs below.
We realize this may be an unexpected inconvenience, and are working diligently to build new functionality to support the calculation of ROT for sales to customers in Illinois while complying with the new requirements of this legislation. In the meantime, we encourage you to work with your tax professional to determine any impact this scenario may have to your business.
For additional information, see our Marketplace Tax Collection FAQ: https://sellercentral.amazon.com/gp/help/G7VYHGJ8ZT2M58CP and the new Illinois MTC FAQ: https://sellercentral.amazon.com/gp/help/GYA6NRX7MT6ZJBPF.
For additional information from the Illinois General Assembly, see the following PDF link (external to Amazon): https://www2.illinois.gov/rev/research/publications/bulletins/Documents/2020/FY2020-18.pdf.”