U.S. sales tax amnesty
Twenty-four U.S. states (and counting) are providing a unique opportunity for qualifying marketplace sellers to erase back sales/use and income/franchise tax liability. The window to participate is brief (17th August – 17th October) sellers need to take action now to become tax compliant.
What is the marketplace seller sales tax amnesty programme?
Open to online marketplace sellers, the 17th August – 17th October amnesty programme will forgive back taxes, interest, and penalties for sellers that haven’t been collecting tax in states where they should.
The amnesty is available in participating states only and applies to both sales/use tax and income/franchise tax. In exchange for this amnesty, businesses must register and begin collecting and remitting applicable taxes in the states that forgive their back taxes, no later than 1st December, 2017.
Details of the tax amnesty programme
Who: United States and foreign businesses that use a marketplace provider, such as Fulfillment by Amazon (FBA) or eBay, to fulfil orders on their behalf (these businesses are often known as marketplace sellers).
To qualify, you must have inventory stored in a third-party fulfilment center in one or more of the participating states. You must not have any other tie to those states that creates nexus, the obligation to collect sales tax. Further, you must not have had any prior contact with those states concerning real or potential tax liability.
What: Sales/use and income/franchise tax amnesty for online marketplace sales into participating states — forgives applicable back taxes, interest and penalties.
When: 17th August – 17th October 2017. Taxpayers wishing to participate must file an application during this window.
Where: Alabama, Arkansas, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Missouri, New Jersey, Oklahoma, South Dakota, Tennessee, Texas, Utah, and Vermont are waiving all applicable back taxes. Colorado1, Massachusetts2, Minnesota3, Nebraska4, Washington, D.C.5, and Wisconsin6 are offering limited amnesty. Check back, this list may grow.
How: Interested businesses and states will work together via the Multistate Tax Commission (MTC) Voluntary Disclosure Program. Business information will not be revealed to states until both parties (the state and the business) sign the voluntary disclosure agreement.
- 1 Colorado will not assess any back tax liability for uncollected sales/use tax. Colorado agrees not to assess income tax for the time period prior to its four-year lookback period. Income tax due for the tax years included in its four-year lookback period, plus interest, must be paid. Colorado notes that it already has a small seller income tax nexus exception for sales less than $500,000 into the state.
- 2 Massachusetts is maintaining a look-back period. Details to be determined
- 3 Minnesota is maintaining a look-back period. Details to be determined
- 4 Nebraska will consider waiving back sales/use tax and income tax liability
- 5 Washington, D.C. will consider a shorter look-back period than its typical three years for both sales/use and income/franchise tax
- 6 Wisconsin will require businesses to remit unpaid sales/use and income/franchise tax plus interest going back to 1st January, 2015
This is a question for you and your tax advisor to tackle. If you own inventory that’s housed in a third-party fulfilment center in a state where you do not currently collect tax, you may be non-compliant. Being non-compliant can represent a significant monetary risk.
An audit could leave you with a hefty bill for back taxes, plus interest on those back taxes and penalties for being non-compliant. The tax amnesty programme is an opportunity for you to erase your back tax liability and start complying with state tax laws.
To apply, you can either submit one online application through the Multistate Tax Commission (MTC) or complete a separate PDF application for each state you’re applying to and email them to the MTC. The state(s) and tax type(s) you apply for are your choice.
The MTC will liaise with the state(s) on your behalf, keeping your information confidential until the voluntary disclosure agreement is finalised. Then you’ll connect with the state(s) to work out the details of your amnesty. You must also register directly with the state and comply with its tax laws by 1st December 2017.
Reach out to your tax advisor to discuss what’s right for you or contact Sylvia at PrietoDion Consulting.
PrietoDion Consulting is a U.S. tax advisory firm that specialises in addressing the unique concerns and specific issues of foreign (non-U.S.) FBA sellers and other sellers engaged in U.S. e-commerce. PrietoDion works with FBA and e-commerce sellers from throughout Europe, Canada, Asia, Australia, and Latin America and is ready to assist foreign sellers with this special state tax amnesty program.
Contact: Sylvia Dion, firstname.lastname@example.org
You have a tax obligation, or nexus, in a state when you have a physical presence there. This extends beyond having an office or employees in the state. If you have inventory in a state, even in a warehouse owned by a third party, you have nexus.
Sometimes it’s hard to track the exact location of your inventory. Amazon, for example, moves FBA inventory among its warehouses in different states, often without notifying sellers first. Once that inventory hits the ground in a state where you aren’t collecting tax but you are making sales, you’re non-compliant.
The amnesty programme has a lot of people asking “what’s the catch?” But there isn’t necessarily one. Participating states are looking to bring unidentified sellers into compliance so they can broaden their tax revenue streams.
You’ll have to begin collecting and filing applicable taxes in the states where you seek amnesty, and this could increase your workload significantly, depending on how you choose to manage your compliance. Manual compliance, for example, takes much more time to manage than automated.
Participating states will not send out blanket statements about sellers that step forward during the program, though they could be required to answer direct questions about a particular seller.
You could continue flying under the radar of states where you’re non-compliant. But after the tax amnesty programme concludes, states will likely increase efforts to uncover non-compliant sellers. If your luck runs out, you’ll be audited, and that will cost you.
States are facing serious revenue shortages, and their hunger for more tax revenue is only increasing. If they can’t get it from out-of-state sellers, they’ll try to get it from their customers. Take Colorado and Washington. They’re requiring out-of-state sellers to share information about their sales into the state and will then go after their customers to collect use tax.
There’s an overwhelming trend toward bringing more businesses into compliance. So you could choose to volunteer yourself for compliance through the amnesty program or wait until a later time. It will likely need to happen eventually.