On September 9th, the Pennsylvania Commonwealth Court held that nonresident Fulfillment by Amazon (FBA) retailers with inventory located at Amazon warehouses in Pennsylvania were not liable for retroactive sales tax.
The main issue before the court was whether non-Pennsylvania businesses that sell merchandise through Amazon’s FBA Program must collect and remit Pennsylvania sales tax pursuant to Section 237(b)(1) of the Tax Reform Code of 1971 (Tax Code), which provides that “[e]very person maintaining a place of business” in the Commonwealth of Pennsylvania (Commonwealth) must collect and remit Pennsylvania sales tax, or pay personal income tax (PIT) pursuant to Section 302(b) of the Tax Code…”
“...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...”
The Analysis
In reaching its decision, the court determined that the Department of Revenue failed to provide “sufficient evidence that non-Pennsylvania businesses selling merchandise through the FBA Program (FBA Merchants), and whose connections to the Commonwealth were only shown to be limited to the storage of merchandise by Amazon in one of Amazon’s Pennsylvania warehouses, have sufficient contacts with the Commonwealth such that Revenue can mandate they collect and remit sales tax…”
Procedurally, the Online Merchants Guild (OMG) filed a lawsuit in 2021 with the Middle District of Pennsylvania against Pennsylvania’s Department of Revenue to challenge Pennsylvania’s efforts to impose sales tax retroactively on the FBA merchants.
In addition to the sales tax issue, the lawsuit challenged 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.
The fact that FBA retailers do not have control over which warehouse their inventory can be stored after Amazon takes control of the inventory was one of a few factors that went into the court’s decision.
The Conclusion
After a thorough review of relevant Pennsylvania statute and case law, the court granted OMG’s cross-application for summary relief.