The Multistate Tax Commission’s Online Marketplace Seller Voluntary Disclosure Initiative has received few applicants so far, as Bloomberg BNA’s Ryan Prete recently reported (subscription required). The program, open to applicants from Aug. 17 to Oct. 17, is intended to incentivize sellers making sales through online marketplaces that provide fulfillment services who do not currently collect sales tax in a state to register and begin doing so. This program is likely to be of particular significance to those selling through Amazon’s Fulfillment by Amazon service. The following are five things these sellers should know about the program.
1. Many states will grant complete amnesty for past taxes under the program.
The following 23 states and the District of Columbia are participating in the program:
Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, North Carolina, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, and Wisconsin.
With the exceptions of Colorado, D.C., Massachusetts, Minnesota, Nebraska, and Wisconsin, all of the participating states will waive all back tax liabilities for uncollected sales and use tax (and, if applicable, income and franchise tax). This provides a significant advantage over the ongoing voluntary disclosure programs administered by most states, which typically require taxpayers to pay back tax liabilities for the prior three or four years.
Under the program, Colorado will waive back tax liabilities for uncollected sales and use tax, but will require its standard four-year look-back period for income tax. Wisconsin will require payment of back taxes from 2015 forward, which represents a shortening of its standard look-back period. The District, Massachusetts, Minnesota, and Nebraska may consider some deviation from their standard look-back periods under certain circumstances.
2. Sellers participating in the program will still need to pay tax previously collected but not remitted, including penalties and interest.
In all of the participating states and the District, sellers will still be required to pay under the program any sales and use tax previously collected but not remitted, plus penalties and interest.
3. Certain circumstances may disqualify you from participating in the program in some states.
Unfortunately, not all Amazon Fulfillment sellers will qualify for the program. Generally, sellers will be disqualified from participating in the program if the seller: (1) has previously registered or filed returns for or paid the tax type for which voluntary disclosure is being sought; or (2) has been contacted regarding a potential liability for the tax type for which voluntary disclosure is being sought. However, North Carolina will consider applications from sellers that received prior contact regarding a potential tax liability.
4. Holding inventory in a state via a third party can create nexus.
It’s 10pm. Do you know where your inventory is? If you sell your products using Fulfillment by Amazon, your inventory could be stored at one of Amazon’s fulfillment centers in a state in which you otherwise don’t have a physical presence. If so, you could be unwittingly creating nexus in a state, as the presence of your inventory in a state is sufficient to create nexus for both sales and use and income and franchise tax purposes.
5. Even if Amazon starts collecting tax on your Amazon Fulfillment sales, this will not negate your past tax liabilities.
As states continue to pursue tax revenue from remote sellers, it is possible that Amazon will start collecting tax on behalf of all Amazon Fulfillment sellers. States are amping up efforts to require marketplace facilitators like Amazon to collect and remit sales and use tax for third-party retailers selling through their platforms, as Bloomberg BNA’s Stephanie Cangialosi recently reported. If these efforts are successful and Amazon does begin collecting and remitting tax for its Amazon Fulfillment sellers, non-filing sellers will still remain liable for tax liabilities back to the date on which they first began holding inventory in the state. Because there is no statute of limitations to assess tax for periods for which a taxpayer failed to file a return, the only way for non-filing sellers to limit their liability for past years is through a program that grants them amnesty or limits the look-back.
Should more states be offering Amazon Fulfillment sellers a carrot in the form of voluntary compliance programs rather than focusing exclusively on expanding enforcement efforts? Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn.
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