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TAX TRENDS

State & Local Taxes In its opinion, the court reiterates important

Fulfillment by Amazon and taxpayer-friendly precedent regarding the
program does not create scope of Section 272.
nexus with Pennsylvania
Amazon’s storage in a Pennsylvania
warehouse of merchandise of a nonresi- and remained obligated to pay any out- happy about the BARs, and the guild
dent retailer participating in Amazon’s standing sales tax for pre–April 1, 2018, filed a petition on behalf of its mem-
Fulfillment by Amazon (FBA) pro- FBA sales and for any FBA sales made bers for review with the Pennsylvania
gram was not sufficient to create the after that date if Amazon failed to col- Commonwealth Court. At this point,
minimum contacts with Pennsylvania lect sales tax. Pennsylvania had not moved beyond
necessary for the state to subject the The DOR then began to send a requesting information and informing
nonresident retailer to sales tax or per- Business Activities Questionnaire the FBA merchants of the dire conse-
sonal income tax (PIT). Request (BAR) to persons and entities quences of not providing a response to
that it identified as FBA merchants the BARs. It had not assessed or col-
Background making sales in Pennsylvania. The BAR lected any tax based on its theory that
Internet retail titan Amazon, besides indicated that they “may have” a physi- the FBA sales were subject to Pennsyl-
selling merchandise it owns on its cal presence in Pennsylvania that would vania tax because Amazon stored their
website, also sells the merchandise of require the collection and remittance of merchandise in warehouses located
third-party retailers (FBA merchants) Pennsylvania sales tax and the payment in Pennsylvania.
through its FBA program. Under the of PIT. The BAR stated that, under
program, the FBA merchants send the Pennsylvania law, storing property, The court’s decision
merchandise Amazon sells for them including inventory, at a distribution or The Pennsylvania court held that the
under the FBA program to one of fulfillment center or at any other loca- FBA merchants, whose connections to
Amazon’s warehouses. After receiv- tion within Pennsylvania constituted Pennsylvania were limited to Amazon’s
ing the merchandise, Amazon is free a physical presence that created tax storage of merchandise in one of its
to, and does, move the merchandise obligations, such as income and sales Pennsylvania warehouses, did not have
to other warehouse locations around tax, that must be reported and remitted sufficient contacts with Pennsylvania
the country, including warehouses in as of the date the property was first such that the DOR could mandate the
Pennsylvania. The FBA merchants have located within Pennsylvania. FBA merchants collect and remit sales
no control and generally no knowledge Recipients of the BAR were offered tax or pay PIT.
of when and where Amazon moves the opportunity to participate in a As the court explained, the Due
their merchandise. voluntary compliance program. Busi- Process Clause of the Fourteenth
Amazon and the Pennsylvania De- nesses interested in participating were Amendment to the U.S. Constitution
partment of Revenue (DOR) agreed in directed to complete and return a ques- protects citizens from unfair tax bur-
2012 that Amazon would voluntarily tionnaire to the DOR within 15 days dens by limiting the power of states and
collect and remit Pennsylvania sales tax of the BAR’s date, which the DOR their political subdivisions to impose
on its internet sales delivered to Penn- would thereafter review for purposes of extraterritorial taxation. To comply with
sylvania of goods it owns and sells. In determining the businesses’ tax obliga- due process, such taxation is restricted
2017, the DOR, seeking to expand its tions. The BAR further indicated that to cases in which the taxpayer in
sales tax revenue base, began developing “[f]ailure to provide the information question has some minimum contacts
a strategy for collecting sales tax from requested [would] result in additional with the taxing state. The existence of
FBA merchants that had a physical enforcement actions and the business minimum contacts requires an act by
presence in Pennsylvania. To this end, [would] forfeit any penalty relief or which the taxpayer purposefully avails
Amazon and the DOR entered into a limited lookback provisions provided by itself of the privilege of conducting
second agreement whereby, effective the [compliance program].” activities within the taxing state, which
April 1, 2018, Amazon would collect Some of the FBA merchants have invokes the benefits and protections of
and remit Pennsylvania sales tax on banded together to form the Online the state’s laws. The placement of goods
FBA sales. Amazon’s FBA merchants Merchants Guild trade association. within the stream of commerce with
were not parties to the 2018 agreement The guild and its members were not the expectation that sales of the goods

64 November 2022 The Tax Adviser