I think I figured out why this happens!
AO3's posting form has two modes: Rich Text and HTML. the vast majority of people write in Rich Text editors, aka any normal word processing software (MS Word, Google Docs, Apple Pages, what have you). but when you first open it, the posting form opens in HTML view. if you paste formatted text into HTML view, it erases every piece of formatting, including paragraph spacing.
this is an easy fix. when you go to post your fic, make sure the posting form looks like this:
not like this:
and please spread the word! this is an important piece of computer literacy that nobody is teaching to the new generations and they deserve to know