Last month, we updated our readers on an ongoing amnesty program for state taxes that is currently taking effect. As this program could be helpful to sellers utilizing fulfillment marketplaces, we wanted to provide an update on this program so qualified companies can take advantage of the potential benefits of the amnesty.
What exactly is it?
Despite certain online sellers, like Amazon, volunteering to collect tax across the U.S., many online sellers are not collecting tax in states where they may have (intentionally or inadvertently) created nexus. Amnesty programs encourage companies to become compliant in a given state. This one is a grand-scale amnesty, covering many states.
The nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces. The Multistate Voluntary Disclosure Program (MVDP) provides a way for a taxpayer with a potential tax liability in multiple states, to negotiate a settlement, using a uniform procedure.
In a nutshell, this is an opportunity for online sellers with inventory in a 3rd party warehouse to resolve prior back taxes. The amnesty program is directed at sellers who are engaged with Fulfillment by Amazon (FBA) or other marketplaces who are not yet registered to collect sales tax or income tax. In many states, this is a way for companies to become sales tax compliant and have full forgiveness of uncollected sales taxes with no penalties and no interest (note that the waivers vary by state).
The states that have now committed to this program include: Alabama, Arkansas, Colorado, Connecticut, the District of Columbia, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, North Carolina, Nebraska, New Jersey, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont and Wisconsin.
When does this program go into effect?
This program is open for a limited time, so companies wishing to participate need to act quickly. It started on August 17 and will close on October 17. Sellers who participate in this program must begin collecting sales tax prospectively, no later than December 1.
Am I eligible for the program?
Sellers are eligible in a particular state if:
- they have not filed any sales/use tax or income/franchise tax returns in the state;
- they have not collected sales/use taxes,
- have not had any other prior contact with the state concerning liability or potential liability for sales/ use taxes or income/franchise taxes, and
- they are an online marketplace seller using a marketplace provider (such as Amazon FBA) to facilitate retail sales into the state.
Companies that have created nexus in a state related to employees or third party contractor or prior office or warehouse rental are not eligible for the amnesty.
How does this amnesty program work?
It is important to first determine where your company has nexus and if your company qualifies for this program. Companies wishing to participate in this program need to fill out an application online or complete a PDF version. This application will be submitted to the MTC and they will forward it on the company’s behalf to the states the company specifies. For more information on how to apply to this program, visit the MTC website by clicking here.
Note that applicants can remain anonymous during the application process. Once approved, the company needs to identify itself.
A few additional considerations
Here are a few things about the amnesty program to consider before committing to the program:
- States like AL, CO & LA have complicated local taxing schemes that companies need to be aware of. Note that as of this writing, the localities of these states are not participating in the amnesty.
- Many states are not on the list of participating states. That includes some of the larger states (i.e., CA, IL and NY). It’s important to consider what to do in those states as well, so an overall analysis is a good idea.
- States are becoming more aggressive daily. They use technology too! So, even if your company decides not to participate in the amnesty, it may still want to review its nexus and filing positions overall.
- This is a very specific program; even if you don’t qualify for the program, it’s still a good time to review your company’s situation and know where you stand because there are some other options for compliance.
If your company has any questions about this amnesty program, and needs help navigating the nuances of this program, give Miles Consulting Group a call. We are here to help with all of your multistate tax needs! We strive to give companies peace of mind as they continue their business operations.
