#TaxAmnestyForOnlineSellers

MTC’s Online Marketplace Seller Voluntary Disclosure Initiative

The Multistate Tax Commission ("MTC") recently announced the roll out of its new "Online Marketplace Seller Voluntary Disclosure Initiative" for online retailers. This program is a very rare opportunity for taxpayers to come into sales tax compliance with multiple states. This initiative, which eliminates tax, penalties, and interest for all prior tax periods, is something that will likely not be offered by these states again, so it is important to take advantage of it now. Best of all, taxpayers are permitted to apply to the program anonymously! Read on for a brief rundown of the initiative to determine if it is right for you and your business.

Who?

This program is advantageous for online retailers doing business in any of the participating states. In order to qualify for the program, a taxpayer must meet the following criteria:

  1. For the tax type that relief is being sought in that state: cannot be registered, cannot have filed any returns, cannot have made payments, and cannot have had any other prior contact with the state concerning potential liability;
  2. Must be an online marketplace seller using a marketplace provider or facilitator (i.e. Amazon’s FBA1 ) to facilitate retail sales into the state with limited nexus-creating contacts in the state;
  3. Must submit a complete application by the due date; and
  4. Must be seeking relief from any past due sales/use tax liability and/or income/franchise tax liability in connection with its online retail sales activity in the state. A taxpayer will not be granted relief from any sales/use tax that it collected, but did not remit.

What?

In order for states to impose a tax liability on an out-of-state company selling products or services in the state, the company must have sufficient nexus to the state. Nexus may be created when your company has certain "connections" to the state, including having an office, inventory, employees, an agent, or a certain dollar amount of sales within the state.

For a taxpayer who has sufficient sales tax nexus to a state, but fails to collect or file in that state, the lookback period starts on the date that the taxpayer began business within the state. The state may assess tax, penalties, and interest all the way back to that date. However, with a typical voluntary disclosure program, a state will limit the lookback period to three or four years. When the taxpayer applies to the state’s voluntary disclosure program, the taxpayer will be required to both file returns and pay back tax liability, plus interest, for the lookback period. After that, the state then will usually waive the tax liability, penalties, and interest for any tax years prior to the lookback period.

Under the current MTC program, most of the participating states will waive sales/use and income/franchise back tax liability (including penalties and interest) for all prior tax periods for qualifying taxpayers. In other words, states are eliminating the lookback period in exchange for the taxpayer agreeing to get into compliance with the state. Taxpayers may get into compliance by registering with the state, timely collecting and remitting tax, and filing all appropriate returns.

In most states, your business could be granted complete amnesty for all prior periods of sales/use tax and income tax liability! In the current tax environment, states are becoming more aggressive and creative in tracking down online marketplace sellers. States not only have improved technology to locate sellers that have nexus to the state, but the states are also passing more and more legislation to create nexus with sellers. This program gives online marketplace sellers an affordable chance to catch up and get into compliance. It is always better to reach out to a state through a voluntary disclosure program to reap the advantageous benefits rather than to risk being caught by the state and hit with large penalties and interest.

Where?

The states currently participating in the program are:

  • Alabama
  • Arkansas
  • Colorado
  • Connecticut
  • District of Columbia
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts
  • Minnesota
  • Missouri
  • Nebraska
  • New Jersey
  • North Carolina
  • Oklahoma
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Wisconsin

While the above listed states are all participating in the program, a participant's application will be submitted separately to each state in which the participant wishes to enter into a voluntary disclosure agreement. While most states are willing to waive any back sales/use tax and income/franchise tax liability, some states have unique rules.

When?

Now! The program is only available for a short time and runs from August 17, 2017 to October 17, 2017. In order to be considered for the program, you must apply by the deadline. Since this is a strict deadline, it is important to contact HBK as soon as possible to get the application process started.

Your next step- contact your HBK professional! We will work with you to determine if this program is appropriate for your business and if you would qualify. We will also help you examine the potential benefits and risks of participating in this program and what it would mean for your business going forward. If you decide to apply to the program, we will complete the application and guide you through each step of the process. Please keep in mind that applications are due by October 17, 2017, so do not wait!

1 - Fulfillment by Amazon ("FBA") is a business model where Amazon stores a seller's inventory and upon a sale, packs and ships the product to the customer on behalf of the seller. While FBA allows online sellers a quicker way to get products to customers, it also typically creates nexus in every state where the seller’s inventory is located.

This is an HBK Tax Advisory Group publication.
About the Author

Kayci D. Petenko, JD, MBA, LLM, is an Associate at HBK CPAs & Consultants based in the Mid-Atlantic Region. She is a member of the Tax Advisory Group specializing in providing State and Local Tax (SALT) consulting, controversy, and compliance services. The majority of her SALT work focuses on nexus, residency issues, and sales and use tax matters.

As a member of the Tax Advisory Group, she works closely with the other professionals of HBK, their clients, and the attorneys and other professionals that make up the client’s team of advisors to consult on a wide range of tax issues.

Prior to joining HBK, Kayci worked in the legal field representing clients in corporate, financial, real estate, and litigation matters. She also advised clients on compliance issues, corporate governance, and contract negotiation.

Kayci can be reached at kpetenko@hbkcpa.com or 215-628-8080.

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