The recently drafted plan by the Multistate Tax Commission’s (MTC) Nexus Committee provides a voluntary disclosure program, or amnesty, for remote sellers that would be in effect for 60 days. During this period, businesses that engage in “marketplace sales” through Amazon’s Fulfillment by Amazon (FBA) or other online marketplaces can come into compliance with state sales tax laws.
Nexus is the minimum amount of contact between a taxpayer and a state allowing the state to tax the business on its activities. Maintaining inventory in a state creates sales tax nexus for both sales tax and income tax purposes.
Following are commonly asked questions regarding MTC's special voluntary disclosure program for remote sellers:
Q: Who does the amnesty program target?
A: Companies that have nexus in a state due to having inventory at a third party, like Amazon FBA, and are required to file income/franchise tax or sales tax returns. If the company has nexus based on other business activities, it would not qualify.
Q: What states are participating in the MTC amnesty program?
A: Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, and Wisconsin. Please refer to MTC’s website for the official list of participating states as the list of states may change.
Q: Do I have to participate in all states, or can I pick and choose the states I want to participate in?
A: It is not an all-or-none situation. Companies can pick and choose the states they want to participate in for the amnesty program. However, there is a $500 minimum estimated tax due requirement per state.
Q: What taxes are covered by the amnesty program?
A: Sales tax collection and income taxes.
Q: What is the benefit of this program?
A: Normally a state requires a three- to four-year lookback in a voluntary disclosure agreement (VDA). With this program, the states noted above are offering prospective sales tax collection only, so there is no lookback for prior-period sales tax liabilities and income tax reporting for tax year 2017 and after.
Q: When does the amnesty program run?
A: August 17, 2017, through October 17, 2017.
Q: Do I need to disclose my company name during the process?
A: The application through MTC is anonymous. Disclosure would not occur until the state has approved the VDA agreement.
Q: Will my information be disclosed to states that are not participating?
A: MTC employees have to sign confidentiality agreements. While states have specific sharing agreements, the information is limited to specific requests about individual taxpayers and does not include open-ended requests for lists/data.
Q: Can I do this program on my own without representation?
A: While the process can be completed by companies directly, Wipfli’s State and Local Tax professionals recommend consulting with a qualified state tax consultant to help analyze your specific situation and determine the best steps to take.
Q: What steps should I be taking?
A: Given the short window of opportunity (August 17, 2017, through October 17, 2017), being proactive is critical. Wipfli’s State and Local Tax professionals are available to help you verify your nexus-creating activities, identify the states in which the process would be beneficial to you, and identify technology to utilize for prospective filing. Following are some of the things you should consider:
- What states should I pursue—all participating states or just the states in which I have had inventory?
- In what states do I have income nexus?
- Do I have revenue or activities from other channels (wholesale) in any of these states?
- Are my products even subject to sales tax in the state(s)?
- What are the compliance needs and costs associated with prospective filing for sales tax collection?