Amazon found liable for sales tax on third-party transactions in SC prior to marketplace facilitator law

Procedural background

Amazon Services, LLC (Amazon Services) is a subsidiary of Amazon.com that operates the website Amazon.com (the Marketplace), where various products are offered for sale, including merchandise from third-party merchants. From 2011 to 2015, Amazon Services and its affiliates were eligible for a specific sales tax exemption in South Carolina and did not remit sales taxes during that period. Starting in 2016, Amazon Services collected and remitted sales taxes on products sold by itself and its affiliates through the Marketplace; however, sales taxes were not collected or remitted on third-party merchant transactions, which comprised approximately 50% of sales on the Marketplace.

After completion of an audit, the South Carolina Department of Revenue (Department) issued a final determination on June 21, 2017 (the Final Determination), assessing Amazon Services approximately $12.49 million in taxes, penalties and interest for the period of Jan. 1, 2016, through March 31, 2016 (Audit Period). The Department determined that Amazon Services was a retailer during the Audit Period and owed sales and use tax on certain third-party product merchant sales on its online Marketplace platform. Amazon Services contended the third-party merchants were the sellers and are therefore responsible for collecting and remitting South Carolina sales and use tax.

Amazon Services challenged the Final Determination, but in 2019, the South Carolina Administrative Law Court (ALC) upheld the Department’s decision.

In turn, Amazon Services appealed to the South Carolina Court of Appeals, arguing among other things that it was a service provider rather than “in the business of selling” and therefore not responsible for collecting and remitting sales tax. Ultimately, in 2024, the court of appeals upheld the ALC’s decision.

Amazon Services then filed a petition for certiorari in the South Carolina Supreme Court which was granted.

South Carolina Supreme Court decision

On March 18, 2026, in a 3-2 ruling, the South Carolina Supreme Court (the Court) upheld the decision of the court of appeals. The Court addressed the issue of whether Amazon Services had an obligation to collect and remit sales tax for sales of products by third-party merchants on the Marketplace based on the law in 2016.

South Carolina Sales and Use Tax Act, S.C. Code Ann. Sec. 12-36-910(A) provided, "a sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every person engaged or continuing within this State in the business of selling tangible personal property at retail."

Amazon Services argued it was not a “seller” of the products and therefore not obligated to collect or remit sales tax. However, the Court focused on the phrase “engaged…in the business of selling” rather than the term “seller” and concluded “a person is "engaged . . . in the business of selling" when they are integrally involved in a "[s]ale" to obtain "gain, profit, benefit, or advantage, either direct or indirect."

In 2016, Amazon Services’ relationship with third-party merchants was governed contractually by the “Business Solutions Agreement” (BSA) which controlled every third-party merchant transaction. In particular, the Court pointed to Amazon Services’ control over pricing constraints, listing criteria, purchase notifications, payment instructions, shipment notices, returns, merchant-customer communications, and disbursement of sale proceeds as detailed in the BSA. The Court noted that the control implemented by the BSA made Amazon Services integral to each transaction, such that a third-party sale on the Marketplace could not occur without actions taken by Amazon Services. As such, the Court found Amazon Services was “engaged... in the business of selling.”

Additionally, the Court dismissed Amazon Service’s claim that imposing sales tax liability for third-party merchant transactions violates its rights under the due process clauses of both the South Carolina and United States constitutions, as it would apply the South Carolina marketplace facilitator law enacted in 2019 retroactively. In response, the Court stated “the Department applied the South Carolina Sales and Use Tax Act as written in 2016 to Amazon Services' business model when it issued its determination. The determination was issued a year before the General Assembly' legislative debate and subsequent enactment of Act 21. Thus, the Department could not have applied Act 21 retroactively because the Act did not exist when the determination was issued.”

Interplay with similar significant cases

a. Grosz v. California Dept. of Tax & Fee Administration1 (Grosz)

The 2023 Grosz decision examined the issue of whether the California Department of Tax and Fee Administration (CDTFA) is obligated to require Amazon to pay California sales and use tax on Fulfillment by Amazon’s (FBA) sales. FBA is an Amazon program where third-party sellers send their products to Amazon fulfillment centers until they are purchased by customers. Amazon handles storing, packaging, shipping, and payment collection services related to these sales. As such, Grosz argued that Amazon is the ‘retailer’ liable for payment of sales and use on FBA sales for periods prior to the enactment of California’s sales and use tax economic nexus legislation.

However, the California Court of Appeals agreed with the lower court that CDTFA’s decision about who the retailer is in a particular FBA transaction is discretionary, not mandatory, and there is " there is no statute or regulation that conclusively establishes that the CDTFA must pursue Amazon for sales and use taxes related to FBA transactions.”

Notably, California enacted sales and use tax economic nexus legislation for remote sellers and marketplace facilitators effective Oct. 1, 2019, which ultimately mitigates much of the ambiguity in this case for periods after Oct. 1, 2019. However, for transactions prior to Oct. 1, 2019, Grosz preserved the CDTFA’s flexibility to hold out of state merchants liable for California sales and use tax when they used FBA arrangements, including holding inventory in the state and made California sales.

Interestingly, the California and South Carolina decisions evaluated a seemingly very similar fact pattern but came to opposite conclusions.

b. StubHub Inc. v. Wis. Dep’t of Revenue

StubHub Inc. (StubHub) operated an online marketplace where tickets to various events (e.g. sporting, concerts) are bought and sold. The Wisconsin Department of Revenue audited StubHub for 2008-2013, finding that StubHub had not registered or paid taxes on its Wisconsin transactions and ultimately issued a final assessment of approximately $8.5 million in sales tax plus interest and penalties. The Wisconsin Tax Appeals Commission upheld the tax assessment but overturned the penalty for failure to pay sales and use tax. On appeal, the Dane County Circuit Court found that the sales tax statute was ambiguous, and StubHub was not subject to sales tax.

However, the Wisconsin Court of Appeals (the Court of Appeals) decision issued on Jan. 13, 2026, reversed the circuit court’s decision concluding that StubHub is subject to both the sales tax and the penalty for its failure to pay sales tax.

The Court of Appeals held that StubHub was a “person selling” within the meaning of the sales tax statute from 2008 through 2013 because StubHub effected the actual transfer of tickets in exchange for payment, processed the buyer’s payment, deducted its fees, remitted the balance to the ticketholder, and controlled ticket delivery mechanisms. Similar to the above South Carolina Supreme Court decision, Wisconsin emphasized the platform’s role in completing the sale.

Further, StubHub argued that the Wisconsin marketplace facilitator legislation enacted in 2019 was evidence that it was not subject to sales tax during 2008-2013. However, the Court of Appeals concluded that the 2019 legislation was a clarification of existing law, not a substantive change.

The Court of Appeals also upheld the assessed penalties because previously published Department of Revenue guidance should have made its filing obligation clear.

Considerations for marketplace facilitators

The three cases above demonstrate states' varied approaches to taxing marketplace platforms before marketplace facilitator laws existed.

These decisions highlight several considerations for marketplace facilitators prior to relevant legislative changes. First, states may pursue historical assessments for pre-marketplace facilitator periods under broad legacy language such as “engaged in the business of selling” or “person selling,” especially where a platform controls payment, fulfillment, returns, or other core transaction functions that are clearly integral to the transaction. Additionally, marketplace facilitators encounter varying standards across states, as illustrated by the preceding decisions. South Carolina evaluated Amazon Service’s "integral involvement" in the transactions; California employed a discretionary enforcement framework, and Wisconsin deemed StubHub as a “seller” for sales tax purposes. These methods represent distinct evaluative criteria rather than equivalent assessments.

Moreover, marketplace facilitator legislation may not offer the level of safe harbor that taxpayers anticipate. Specifically, South Carolina treated its 2019 statute as non-retroactive but irrelevant because the preexisting statute already covered Amazon, while Wisconsin treated its 2019 marketplace provider law as a clarification of prior law.

Finally, the penalty risk can be substantial for pre-marketplace facilitator periods. StubHub demonstrates that states may rely on bulletins, regulations, audit positions, or other published guidance to argue that a platform had notice and therefore acted negligently or with willful neglect.

What’s next?

The South Carolina decision is likely to be cited in other pre-marketplace facilitator audits predating applicable marketplace facilitator legislation. Taxpayers with potential historical marketplace exposure should consider reviewing pre-marketplace facilitator periods, contractual allocation of tax responsibilities, prior state guidance, and the degree of platform control over pricing, payment, fulfillment, returns, and customer interactions.

If you have any questions, please reach out to your Baker Tilly state tax advisor.