U.S. Senators are poised to pass a measure this week that would mean new taxes for South Carolina online shoppers who frequent Amazon. The state granted Amazon an exemption to collecting sales tax until 2016, but that deal would end if Congress passes the so-called Marketplace Fairness Act.
Back in 2011, Amazon made a big stink about getting the sales tax exemption in South Carolina and threatened to pull the plug on a planned distribution center and more than 1,200 new jobs if it didn't get its way. State law says any online company with a physical presence in South Carolina has to collect sales tax.
But being tax-free was part of Amazon's competitive advantage, so South Carolina lawmakers caved. They agreed to exempt Amazon until 2016. But they also added an escape hatch that said the exemption would end earlier if Congress passed a law called the Marketplace Fairness Act.
"I think when the legislation was written, nobody really thought Congress was going to pass the Marketplace Fairness Act, so it was just put in kind of as a failsafe," says former South Carolina Department of Revenue director Burnie Maybank.
That "failsafe" suddenly seems pretty smart.
The Marketplace Fairness Act of 2013 has bi-partisan support and momentum in the U.S. Senate. If the House passes the measure – which is still a big if –states would have authority to make online retailers collect sales tax– no matter where the retailer is located.
Twenty-nine governors, including South Carolina's Nikki Haley support the measure. After all, they're currently missing out on hundreds of millions of dollars in sales taxes.
And big, national retailers have long pushed for the law, "to level the playing field" with internet giants like Amazon, says Verenda Smith of the Federation of Tax Administrators.
In a new twist, Amazon has dropped its opposition to the Marketplace Fairness Act as a way to simplify logistics in a patchwork of state laws.
Cynics say Amazon knows its sales-tax-free days are numbered anyway, since most state exemptions expire in 2014. South Carolina's 2016 expiration makes it one of the longest-lasting sales tax havens for Amazon, unless the Marketplace Fairness Act gives the state an early out.