If a business sells taxable goods online—also known as marketplace or FBA-style selling (fulfilled by Amazon)—24 states are now participating in a program that may forgive back sales taxes, interest and penalties if sellers haven’t collected and remitted tax in states where they should have. The program runs from August 16 through November 1 (an extension from the original deadline of October 17), so there’s not much time to file.
Officially called the “Online Marketplace Seller Voluntary Disclosure Initiative
,” offered by the Multistate Tax Commission (MTC), the initiative’s purpose is to get businesses to become compliant with state tax laws without incurring a potentially bankrupting burden of back taxes and fines.
The dictionary defines nexus as a connection or link. Where sales tax is concerned, having some sort of physical presence in a state may create nexus—a business connection with that state. Selling goods through a company like Amazon, eBay, Wayfair or others, where merchants store products in their warehouses or fulfillment centers, and have those companies pack and ship the merchandise to customers, may create that nexus and an accompanying tax obligation.
This makes an already complicated U.S. sales tax situation even more so. Sellers may have not even realized they owe taxes to a state where they actually sell no merchandise, simply because their goods were warehoused there. Up until recently, states have largely ignored marketplace sellers, but many now want a piece of that very, very large pie—Internet Retailer’s research reported those transactions topped $1 trillion globally in 2016.
Before considering amnesty, however, marketplace sellers need to know where their goods are being stored and shipped from in order to be able to determine where they may have a tax obligation, and then research whether those states are participating in the program.
The Amnesty Program
This program has been described by an Amazon partner as a once-in-a-lifetime opportunity. It’s open to all online marketplace sellers, whether or not they sell through Amazon specifically, but only if they haven’t been collecting and remitting sales tax already in participating states. (However, these businesses may still qualify for income or franchise tax amnesty.)
If a business already has established nexus in a state—say by having a sales office or its own warehouse there—it is also ineligible.
As mentioned previously, 24 states are participating in the program, but each has its own rules and conditions, and some have limitations. The Sales Tax Institute offers an excellent chart
with links to the state amnesty pages.
For businesses concerned that exploring the program will expose them to penalties they would not otherwise have incurred had they avoided it altogether, MTC will not reveal company information to the state until both the state and the business have signed a voluntary disclosure agreement.Avalara
recommends businesses consider these three things to decide if participation in the program might be a good choice:
- A concern that sales tax may be owed to one or more states
- A desire to resolve any back taxes with as little paperwork as possible
- An understanding that using the program will necessitate collecting sales tax in the future
The Sales Tax Institute also suggests in their free webinar
that those unsure of whether they qualify for the program, but want to participate, should apply regardless.
Are There Risks to Participating?
Aside from getting on the states’ tax radar, participants will be taking on administrative responsibilities for registering their businesses with the states and sales tax collection by December 1. The states will expect them to collect and remit tax on all sales, not just marketplace-associated ones, if they also sell and fulfill there by way of their own site. The complexity of the sales tax landscape, with each state—and often smaller jurisdictions within states—having distinct tax rates and highly dynamic exclusion lists, may well necessitate purchasing special software to keep up-to-date with it all.
Another potential sticking point is that participants will now need to charge their customers sales tax, which may make them unhappy, even though the tax is the buyer’s obligation.
Risks to Not Participating
Not collecting and remitting sales tax to distant states wasn’t always a big deal, but now it is. States are becoming more aggressive, with strong legislation and enforcement efforts. As traditional brick-and-mortar stores decline and the marketplace-style of selling gains a greater share of the retail market, states don’t want to see their tax revenue streams drying up.
Avoiding the problem will become more and more difficult to do over time, so it pays to deal with the issue now, during this golden period. It’s also worth remembering that if businesses don’t collect sales tax from customers when they should have, they will be liable for the unpaid taxes, plus any fees or penalties incurred. That may turn out to be a financial burden that some smaller sellers cannot shoulder.
Given the available options, taking advantage of the multi-state tax amnesty program may turn out to be the best of the bunch. While individual states offer periodic programs and voluntary disclosure arrangements independently, the MTC amnesty deal may result in the least risk and penalty, along with the least amount of work.
The Takeaway for AP
Remember, this isn’t just a seller problem. As a customer, if you weren’t charged sales tax when you should have been, this now becomes your problem in the form of use tax. Fortunately, in many states the amnesty program applies to use tax too, so if you suspect you may have unpaid tax obligations, it’s worth digging in now to see if this program can help. Regardless, you should be setting funds aside to pay use tax as necessary, whether or not you can participate in the program.
According to Maryland’s webpage on the program
, “After amnesty the chances of being caught and charged with failure to file or pay will be greater than ever.” That’s probably also true of most states, so the time to act is now.
Here’s a list of resources, and there are many more available online:http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiativehttps://blog.taxjar.com/amazon-fba-sales-tax-amnesty/https://www.avalara.com/blog/2017/08/03/new-state-sales-tax-amnesty-will-affect-fba-sellers/https://www.avalara.com/learn/sales-tax-amnesty/https://www.avalara.com/blog/2017/08/07/fba-sales-tax-amnesty-what-you-need-to-know/http://www.salestaxinstitute.com/resources/sales-tax-amnestyhttps://taxify.co/2017/08/10/details-sales-tax-amnesty/https://www.digitalcommerce360.com/2017/08/16/sales-tax-amnesty-program-marketplace-sellers/