MTC FBA VDA? IDK: What All FBA Sellers Should Consider About Sales Tax and Voluntary Disclosures

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Tax Policy

Twenty-four states and the District of Columbia are participating in the Multistate Tax Commission's online marketplace seller voluntary disclosure initiative. The application deadline for relief under the program has now been extended to November 1, 2017. In this article, Grant Thornton's Brian Howsare and Aaron Fell discuss the program and what benefits it may provide and burdens it may impose.

Brian Howsare Aaron Fell

By Brian Howsare and Aaron Fell

Brian Howsare is a manager in Grant Thornton's indirect tax practice and provides sales and use tax, gross receipts tax, and VAT assistance to organizations across many different industries including technology, retail, and manufacturing. He can be reached at Aaron Fell is a Manager in Grant Thornton's Florida State and Local Tax Practice in Jacksonville, FL, and focuses on indirect taxes. He can be reached at The authors would like to thank Robert D. Clarke, Principal, and Michael Cronin, Senior Manager, for reviewing and providing commentary on this article. Rob serves as the Grant Thornton International Indirect Tax Leader for the Americas Region and is also the national leader of Grant Thornton's state and local tax consulting practice. He can be reached at Michael is the Market Leader of Grant Thornton's New England State and Local Indirect Tax practice and can be reached at

The Multistate Tax Commission (“MTC”) National Nexus Program is conducting a special voluntary disclosure initiative (“VDA”) aimed at online sellers using Fulfillment by Amazon (“FBA”) and similar platforms. [While the MTC program is technically termed “a voluntary disclosure initiative,” the acronym “VDA” is used in this article (with “A” representing “agreement”), as that term is commonly used for these types of state tax compliance programs.] [FBA is an arrangement where Amazon holds sellers' inventory in its warehouses and distribution centers and then ships the inventory to the buyer when it is purchased via Amazon's website. This is in contrast to a conventional Amazon seller who stores his or her own inventory and is responsible for shipping it directly to the customer when it is purchased. The FBA arrangement is beneficial to sellers not only because Amazon takes care of shipping for individual purchases, but also because it allows Amazon sellers to make their items eligible for Amazon's Prime program.] The VDA is open to all applicable sellers, but is tailored for those that have established nexus with a state by virtue of having inventory in an FBA fulfillment center located in that state. The VDA is unusually broad in terms of the relief offered and the number of participating jurisdictions, which makes this an ideal opportunity for FBA sellers to refocus on their sales tax collection responsibilities and consider taking steps to identify potential liabilities. Before taking action on this front, however, FBA sellers should understand what the VDA offers, and should weigh three critical considerations. [These considerations are limited strictly to sales and use tax. Sellers should separately consider potential impacts of income/franchise tax.] The application deadline to participate in the VDA originally was October 17, 2017, but was recently extended to November 1, 2017.


Twenty-four states (and the District of Columbia) are offering relief from past due sales/use tax (and income/franchise tax if applicable) including interest and penalties, in connection with sellers' online retail sales activity in the states. The 24 participating states are Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, North Carolina, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, and Wisconsin. [Multistate Tax Commission, Online Marketplace Seller Voluntary Disclosure Initiative (2017)] Some states have chosen to slightly vary the degree of relief offered under the VDA. Sellers are required to register for sales and use tax (and income/franchise tax, if applicable) with the states from which they seek relief, and the sellers are required to collect and remit sales and use tax on a prospective basis.

A taxpayer eligible for the VDA is:

An online marketplace seller using a marketplace provider/facilitator (such as the Amazon FBA program or similar platform or program) to facilitate retail sales into the state and represents that it does not have any nexus-creating contacts in the state, except for the online marketplace seller's inventory stored in a third-party warehouse or fulfillment center located in the state or other nexus-creating activities performed by the marketplace provider/facilitator on behalf of the online marketplace seller in the state. [Multistate Tax Commission, Online Marketplace Seller Voluntary Disclosure Initiative (2017). (emphasis added). The MTC defines a “marketplace provider/facilitator” as “a person who facilitates a retail sale by an online marketplace seller by (1) listing or advertising for sale by the online marketplace seller on a website, tangible personal property, services, or digital goods that are subject to sales/use tax; (2) either directly or indirectly through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the online marketplace seller; and provides fulfillment services (including sortation services) to the online marketplace seller.”]

The VDA also includes eligibility criteria similar to most other state tax voluntary disclosure or amnesty programs and initiatives undertaken by states, such as requiring that the participant not having been previously registered with the state taxing authority, or contacted by the state taxing authority concerning liability for the tax type at issue.

Relative to most states' conventional voluntary disclosure or amnesty programs, the terms of the MTC's VDA appear considerably generous. Generally, state voluntary disclosure or amnesty programs only compromise on penalty and limit the look-back period – they generally do not waive tax and interest liabilities for included periods. Under the MTC's VDA, however, states generally waive liabilities on tax and interest, and at least one state, North Carolina, offers a break to taxpayers that have received prior contact concerning potential tax liability. Participating states will also not share the identity of participating taxpayers with other states, another diversion from traditional voluntary disclosure or amnesty programs.

To reiterate, eligible FBA sellers can come forward and incur zero liability for prior sales in some states (and reduced liability in others). This is offered in return for the seller accepting the responsibility of registering and collecting tax on a prospective basis. To many FBA sellers, this may be a small price to mitigate risk of an assessment for a prior period. Before deciding either way, however, all FBA sellers should weigh the following three considerations in deciding whether the VDA presents a favorable deal for them.


For some FBA sellers, the VDA may offer terms that are favorable when compared to a potential audit assessment, but for other sellers, the terms could be an enticement to register and file in jurisdictions where it may not be required. For any FBA seller to decide on the appropriate course of action, there are three considerations that must be taken into account:

1) Many FBA sellers think they know where there inventory is, but actually have no idea

When establishing their FBA relationship, many sellers ship their inventory to one, or only a handful of Amazon warehouses or sorting centers. Even many savvy sellers, who know that this may create a collection obligation in the state to which they shipped the goods, likely think that their filing obligation is limited to this small number of states. As a matter of course, however, Amazon unilaterally redistributes sellers' inventory to distribution centers across the country without having to notify its sellers. [Sellers can view an inventory report from Amazon showing where their inventory is currently located. Additionally, some sales tax programs, such as TaxJar, continuously keep track of the fulfillment centers from which sellers' inventory is shipped, which indicates that inventory was held at those centers.] Overnight, a seller's inventory can go from one state (where the seller is located) to twenty or more. While this benefits the seller by enabling the inventory to quickly reach customers across the country, it may also increase the jurisdictions in which the seller is expected to collect sales tax.

In a 2017 survey conducted by Bloomberg BNA, state tax departments were asked whether shipping goods from an unrelated distribution center was sufficient to establish nexus for sales and use tax purposes, and 32 states responded that it was. [Bloomberg BNA Multistate Tax Report, 2017 Survey of State Tax Departments, Vol. 24, No. 4] Based on these responses, these state tax authorities may expect FBA sellers with inventory stored in in-state fulfillment centers to collect and remit sales tax on sales shipped to that state, regardless of whether the seller was aware of its inventory being sent there. Accordingly, FBA sellers should actively monitor the locations of their inventory when considering whether they have an obligation to collect and remit sales tax on orders from certain states. Not doing so could result in unexpected sales and use tax assessments from several jurisdictions, particularly once the VDA ends.

2) FBA sellers may not have sales tax nexus in many of the states participating in the VDA

The unprecedented terms of the VDA and the limited time frame for sellers to participate may entice many sellers to rush in and register. Those that rush in, however, may be assuming administrative burdens (collecting and remitting taxes, preparing and filing returns) and potential liabilities (taxes, penalties, and interest for mistakes made in future collection and filing efforts), without even being required to do so. Accordingly, it is just as important for a seller to know where its inventory is not located as much as where it is. And for states where inventory is located, sellers should be aware of what each state's expectations are.

a. Many states participating in the VDA currently do not have FBA fulfillment centers

As noted above, the VDA is for FBA (or similarly situated) sellers that have nexus as a result of FBA inventory that is stored in an Amazon (or similar marketplace provider/facilitator) warehouse or fulfillment center located within the MTC state. However, according to TaxJar, a company that assists FBA sellers in administering sales tax, Amazon currently only has fulfillment centers in 24 states. Of these 24 states, only 10 are states participating in the VDA. [These 10 states are Connecticut, Florida, Kansas, Kentucky, Massachusetts, Minnesota, New Jersey, Tennessee, Texas, and Wisconsin.] Assuming TaxJar's data is correct, that means that 14 states (and the District of Columbia), which are purportedly offering amnesty to FBA sellers that come forward and register are not currently capable of holding FBA sellers' inventory . [These 14 states are Alabama, Arkansas, Colorado, Idaho, Iowa, Louisiana, Missouri, Nebraska, North Carolina, Oklahoma, Rhode Island, South Dakota, Utah, and Vermont.] FBA sellers should give serious consideration to this in determining whether they have a collection obligation in these states, and in deciding whether to register for sales and use tax with these states. [Again, sellers also should consider potential income or franchise tax obligations that may apply in these jurisdictions as well.]

b. Even some MTC states with FBA fulfillment centers may not think that FBA inventory creates nexus

As noted above, 32 states indicated in a 2017 BNA survey that they viewed shipping goods from an unrelated distribution center as sufficient to establish nexus for sales and use tax purposes. Six states, however, indicated that this contact is not sufficient to establish sales and use tax nexus. [These states are Indiana, New York, Tennessee, Vermont, Virginia, and West Virginia. The remaining states either did not respond to the survey or did not offer a solid answer.] Tennessee and Vermont are both states that are participating in the VDA, despite having indicated in the survey that they do not view shipments from third party distribution centers are establishing nexus. Granted, the survey is informal guidance and the tax authorities are certainly not bound by their responses, but even informal guidance is an indicator of how a jurisdiction views an issue. As a result, in deciding whether and where to register, taxpayers should likely consider the risk of assessment from states indicating that they do not recognize FBA inventory as establishing nexus (and in the case of Vermont, a state where FBA inventory likely isn't located to begin with, as noted above). [Although FBA sellers should be aware of and consider economic nexus thresholds and notice requirements, such as those adopted by Vermont, when weighing assessment risks.]

3) FBA sellers may have a good defense to use against assessments, regardless of nexus

Even if an FBA seller does have sales and use tax nexus with a state, the seller may be able to argue that state law absolves it from having to collect and remit the state's sales tax on its online retail sales. This is due to the similarities between the FBA program and a consignment relationship. Under many states' statutes, the burden of collecting and remitting sales tax is on the party that holds and sells consignment inventory (the consignee), not the party that owns the inventory (the consignor). A few of the states that are participating in the VDA have addressed this issue as follows:

Florida – Where merchandise is delivered to a dealer on a consignment basis, the tax shall be collected and remitted by the consignee, not the consignor. [Fla. Admin. Code Ann. r. 12A-1.081]

Texas – A person engaged in business in this state who sells, leases, or rents tangible personal property owned by another person by means of a consignment sale is a seller responsible for the collection and remittance of the sales tax on the consignment sale. [34 Tex. Admin. Code §3.286(a)(11)]

New Jersey – A retail store operator who sells items subject to sales tax from inventory and those taken on consignment is responsible for charging and collecting a sales tax on the consignment items when sold to the public, as with any other item sold from the inventory in the store. [New Jersey State Tax News, Vol. 11 No. 3 (Date Issued: 05/01/1982)]

Accordingly, to the extent that Amazon's role in the FBA relationship is as a consignee, then the obligation to collect and remit sales tax on FBA sales would be on Amazon, not the FBA seller. Not every state clearly defines a consignment relationship, but Texas provides a salient example, defining a consignment sale as:

The sale, lease, or rental of tangible personal property by a seller who, under an agreement with another person, is entrusted with possession of tangible personal property with respect to which the other person has title or another ownership interest, and is authorized to sell, lease, or rent the tangible personal property without additional action by the person having title to or another ownership interest in the tangible personal property. [34 Tex. Admin. Code §3.286(a)(1)]

Under this definition, an FBA arrangement arguably could be considered tantamount to a consignment relationship with Amazon as the consignee, as Amazon possesses the sellers' inventory and has the ability to sell the inventory without additional action by the seller. Additionally, although not part of the VDA, California has issued guidance pertaining specifically to this scenario:

When a seller utilizes an online marketplace and/or a third-party fulfillment center to make a sale of tangible personal property to a California customer, either the seller or the marketplace operator may be the retailer for sales and use tax purposes.

Some online marketplace operators display the property of various sellers, process the sellers' transactions and provide various other services, but the terms of sale dictate and the receipts and other documents related to the sales reflect that the consumers are purchasing the property directly from the sellers. In these instances, the marketplace operators are generally just providing a service, and the seller that lists the property on the marketplace is the retailer making a retail sale to the consumer.

If you are a seller making sales through an online marketplace in this manner, you are generally considered the retailer for purposes of such sales. However, if the marketplace operator is also providing fulfillment services, the marketplace operator will be considered the retailer if it has possession of the property at the time of sale and it can transfer ownership to the purchaser without further action by you . [California State Board of Equalization, Pub. 109 – Internet Sales (Oct. 2016) (emphasis added)]

Under this authority, it appears that FBA sellers, if challenged, could claim that the operation of a state law absolves them from having to collect and remit sales tax on their online sales. It is unclear whether this assertion has been raised by an FBA seller to contest an audit assessment, and if so, whether it has been successful. To the extent that states have considered and denied this contention, it is possible that the states may simply view consignments and FBA relationships as two discrete species. It may also be possible that states may view the idea of asking Amazon to collect more tax as problematic, since many states purportedly reached deals with Amazon that involved extending advantageous tax collection terms and other incentives in exchange for Amazon locating warehouses and sorting centers in some states. Regardless, this may be another consideration for FBA sellers to take into account in determining if registering is proper for them. [Sellers may also want to consider any indemnification provisions regarding tax liabilities in their agreements with Amazon.]


The bottom line is that the VDA for FBA sellers offers terms that are considerably better than conventional voluntary disclosure and amnesty programs. As a result, FBA sellers should consider on an individual basis whether they would recognize benefits from applying. In the same vein, however, FBA sellers should also consider whether the MTC's beneficial terms actually translate into real benefits for the seller. After all, these purported benefits are only provided in exchange for sellers' agreement to assume sales tax collection and remittance responsibilities going forward; and sellers should know if they may be assuming these responsibilities without gaining of value in return. While the tax collection and return filing burdens that come with registering can be lessened for a fee with the assistance of companies such as TaxJar, they still constitute responsibilities that require continual diligence and effort to avoid notices and potential assessments from tax authorities. Therefore, in this rapidly evolving area, the paramount consideration is that each FBA seller be fully informed before deciding on the course of action that is appropriate for it.

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