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By Ryan Prete
Sellers participating in the “Fulfillment by Amazon” program and similar marketplace arrangements may be excused from back taxes under a new voluntary disclosure program endorsed by a Multistate Tax Commission committee.
The MTC’s Nexus Committee voted July 31 to move forward with a draft plan, which would allow qualifying out-of-state sellers to apply for the program between Aug. 17 and Oct. 17. In return for marketplace vendors registering to collect and remit tax, some states may forgive back tax liabilities for sales and use taxes, as well as income and franchise taxes. However, other states may not waive lookback periods.
Richard Cram, director of the MTC’s National Nexus Program, told Bloomberg BNA that he believes between 14 to 18 states will end up participating in the marketplace-seller-exclusive program.
Several states have indicated they will participate in the program and may waive a lookback period for back taxes, including sales and use tax as well as franchise and income tax—Alabama, Connecticut, Kansas, Kentucky, Louisiana, Nebraska, Oklahoma, Utah, and Vermont. Colorado and New Jersey have indicated they will participate, but they likely won’t agree to waive a lookback period for income taxes.
Other states considering participation include Arkansas, Idaho, Iowa, Michigan, North Carolina, North Dakota, Tennessee, Texas, and Wisconsin.
The committee approved a motion allowing for state flexibility in determining lookback liability, in part to get the program before state decision-makers.
“We really need to know which states wish to participate as soon as possible, so word can get out to qualifying applicants,” Cram said during the meeting, which is part of the MTC’s annual meeting in Louisville, Ky. “It’s better for us to avoid spelling out the criteria for states. However, if the states can’t get their data back to me before August 17, this program may not be successful.”
The committee originally pushed for a start date of Jan. 1, 2018, but is now hoping that remote sellers will start collecting and remitting sales tax by Dec. 1. MTC officials are hopeful that a high taxpayer application rate will convince more states to participate.
The MTC’s executive committee will review the voluntary disclosure plan during its Aug. 3 meeting.
Before Aug. 17, states must report back to the Nexus Committee whether they will enforce lookback periods. They must also report whether they will require minimum threshold criteria for remote retailers seeking to participate, such as $10,000 in annual in-state sales for sales and use tax purposes.
Some MTC officials discussed the benefits of waiving a lookback period.
“The more conditions and burdens that you put on folks about back tax liability, the less likely they are to come forward and join the program. You want to be able to say, ‘look we have a simple, easy way that gets you into compliance in our state, and there isn’t going to be a back payment burden on you,’” Marshall Stranburg, deputy executive director of the MTC, said. “One of the things you can sell applicants on is by saying once you are signed up, you don’t have to worry about us going back after you. It’s a benefit to you, and it’s a benefit to us.”
Many marketplace sellers don’t collect and remit state sales and use taxes, arguing they aren’t required to under the U.S Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota , which prohibits states from imposing sales and use tax collection obligations on sellers that don’t have an in-state physical presence.
For example, FBA sellers typically send their items to Amazon ahead of sales, and Amazon stores them in warehouses and fulfillment centers near customers. However, as Amazon has opened more warehouses and centers in more states, the FBA sellers have nexus where that inventory is located, Cram said.
The Nexus Committee voted down a motion to work with Pennsylvania and Indiana—which aren’t members of the MTC Nexus Program—to implement the voluntary disclosure program.
If the motion had passed, the MTC would have charged the two states a minimum of $6,400—based on a quarter year’s work—to market the voluntary disclosure program in their respective regions. The commission would have recognized the transaction as a one-time deal, and any further business with Pennsylvania or Indiana could only occur under a year-long membership deal.
Meanwhile, the MTC’s Audit Committee reported July 31 that the Audit Program completed “four income tax audits and parts of eight other income tax audits for the fiscal year 2017.” The program also completed eight sales tax audits and parts of six other sales tax audits during the same period.
The MTC has proposed assessments of $167.5 million for the completed income tax audits and $3.8 million for the completed sales tax audits for FY 2017, according to the Audit Committee’s report. There are 21 income and 33 sales tax audits still in progress.
“Year-over-year results are cyclical, but this past year was a very good year for our audit program,” Greg Matson, executive director of the MTC told Bloomberg BNA in an email.
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