South Carolina says Amazon will cost it $500 million in sales tax

Amazon CEO Jeff Bezos. Photo: Ted S. Warren / AP

Amazon will cost the State of South Carolina $500 million in sales tax over the next five years, the state's tax authority said in a motion filed this week, CNBC reports.

Why it matters: This is yet another example of states getting serious in their effort to collect sales taxes on cross-state e-commerce transactions. The failure to do so is costing states more than $1 billion per year and contributing to persistent state and local budget constraints even as economic growth accelerates.

  • Though Amazon now collects sales tax on all goods it sells from its own inventory, it does not necessarily collect tax for third-party affiliate sales.
  • The failure of Amazon or these third parties to collect sales tax cost South Carolina $57 million last year, the state says. Amazon didn't immediately respond to a request for comment.

What the law says: As it stands, retailers aren't required to collect sales taxes on goods sold in states where they don't have a physical presence, though customers still technically owe (but rarely pay) these duties.

What's next: States are challenging this standard in jurisdictions around the country, with the most closely watched case being a South Dakota petition filed earlier this month to the Supreme Court, asking it to review whether it can constitutionally require retailers in other states to collect South Dakota sales tax.