Multistate Tax Amnesty Service Unaffected by New Jersey Program

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Ryan Prete

The Multistate Tax Commission’s amnesty program for Amazon-type marketplace sellers has entered its second week with more registered retailers just as New Jersey’s voluntary disclosure program for out-of-state sellers with “click-through” agreements wraps up its first week.

As of Aug. 28, the MTC had received applications from 32 online marketplace sellers seeking to participate in the Online Marketplace Seller Voluntary Disclosure Initiative, according to Richard Cram, director of the MTC’s National Nexus Program. New Jersey’s three-month registration period kicked off Aug. 21 and will run through Nov. 21.

Cram said New Jersey’s program won’t interfere or impede the MTC’s program that is centered around third-party sellers on marketplace platforms such as Amazon.com Inc, eBay Inc., and Etsy Inc. New Jersey is participating in the MTC initiative.

“New Jersey’s ‘click-through nexus’ voluntary disclosure program applies to remote sellers who have referral agreements with in-state representatives who refer sales to the remote seller and receive compensation for referring the sale, therefore creating nexus based on that contractual referral relationship,” Cram told Bloomberg BNA in an email.

“States that are participating in the MTC online marketplace seller voluntary disclosure program initiative are always free to offer their own independent voluntary disclosure programs,” Cram said. “We don’t believe New Jersey’s ‘click-through nexus’ VDP takes away anything from the MTC’s online marketplace VDP initiative.”

Twenty-three states plus the District of Columbia are participating in the program. In these jurisdictions, Amazon raked in $24.7 billion in 2015.

Compliance With Law

The New Jersey Division of Taxation is offering the program to help “certain out-of-state businesses comply with provisions of the Sales and Use Tax law that went into effect in 2014,” according to a DOT notice.

“The 2014 legislation applies to certain out-of-state sellers (retailers, service providers and other businesses) that reach agreements with businesses located in New Jersey for referrals of New Jersey customers. These sellers may not have a physical presence in New Jersey, but State law considers them to be soliciting in New Jersey because of their referral agreements,” according to the notice. “If they meet all criteria in the 2014 law, these sellers must register in New Jersey and collect and remit New Jersey Sales and Use Tax.”

Potential ‘Whipsaw’

One difference between the two voluntary disclosure programs is the presence of a lookback period.

While New Jersey will waive the entire lookback period for sellers participating in the MTC program, the state’s ‘click-through nexus’ program has a lookback period spanning between Jan. 1, 2017 and June 30, 2017.

The New Jersey program creates a potential “whipsaw” that sellers should consider, Leah Robinson, partner and lead of Mayer Brown LLP’s State and Local Tax group, told Bloomberg BNA in an email.

“Part of the Division of Taxation’s administration of both the click-through nexus law and the click-through voluntary disclosure initiative is the requirement to register with the State (i.e., business registration). This creates a significant risk of income tax exposure under the Corporate Business Tax, which deems an out-of-state company to have a CBT obligation if it registers to do business,” Robinson said. “The Legislature certainly did not intend to create a corporate income tax liability through the click-through seller sales tax provision. It appears to be a consequence of the Division of Taxation’s administration of the click through nexus provision and VD initiative.”

“Ideally, the Division of Taxation—who provided a newly created registration code for click-through sellers—will expand its guidance to tell sellers whether this type of registration will be considered corporate income tax nexus-creating. Of course, the answer is that it should not, but either way, the Division should fully inform sellers of the potential consequences of their program,” Robinson said.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State