We turned to the sales tax experts at TaxJar to help sort out some of the more difficult questions surrounding the multistate offer of sales tax amnesty for marketplace merchants. TaxJar provided this guest blog post.
The good news: The commission in charge of the multi-state sales tax amnesty program for online merchants has extended the deadline for those who want to apply to Nov. 1.
The bad news: Nov. 1 is two weeks away.
Not to worry. We’ve got your back. We went to the experts, scoured the web and relied on our in-house tax knowledge at TaxJar to answer the burning questions concerning the sales tax amnesty program. Read on.
Q: What’s is the Amazon FBA Sales Tax Amnesty?
A: “The Multistate Tax Commission (MTC) is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws,” the commission explains on its website.
In this case, the MTC’s Amazon FBA Sales Tax Amnesty is designed to help Fulfillment by Amazon (FBA) sellers comply with sales tax laws, without facing the fines and penalties they ordinarily would for not collecting sales tax in the first place.
The idea is to benefit states by increasing sales tax revenue, while benefiting marketplace sellers who were not aware of their sales tax liability or who knew they were out of compliance, but were worried about the past tax, interest and other penalties they’d face by making good on their obligations.
Under the amnesty plan, FBA sellers can simply register for a sales tax permit and begin collecting sales tax. States will not look back at previous sales tax liability.
Q: Which states are participating in the Amazon FBA Sales Tax Amnesty?
A: Currently, the following states are participating in the Amnesty:
- Colorado (upcoming Amazon state; Colorado will waive sales and use tax, but will not waive income tax if you also owe back income tax. Read more here.)
- Connecticut (Amazon state)
- Florida (Amazon state)
- Kansas (Amazon state)
- Kentucky (Amazon state)
- Massachusetts (Amazon state) (with provisions; read more here)
- Minnesota (Amazon state) (with provisions; read more here)
- Nebraska (with provisions; read more here)
- New Jersey (Amazon state)
- North Carolina
- Rhode Island
- South Dakota (with provisions; read more here)
- Texas (Amazon state)
- Tennessee (Amazon state) (with provisions; read more here)
- Utah (upcoming Amazon state)
- Washington DC (may have a look back period, read more here.)
- Wisconsin (Amazon state, with provisions including a limited look-back period. Read more here.)
Q: What do these states mean by “amnesty?”
A: If you register for a sales tax permit and become sales tax compliant in one of the above states during the amnesty period, you will not be subject to a sales tax liability “look back,” or any associated fine and penalties. (Though some states have exceptions. Be sure to note the states in our list followed by “read more here.” Click on the links for more information.)
Q: When will the Amazon FBA sales tax amnesty take place?
A: Amnesty registration is taking place now. The commission started taking applications on Aug. 17, and it will stop accepting them on Nov. 1. Online sellers who wish to take advantage of the amnesty must apply by Nov. 1.
Q: Should I participate in the Amazon FBA sales tax amnesty?
A: As with every business decision, this one is up to you. If you’re concerned that past due sales tax will come back to harm your business, then the amnesty period could be the best possible time to become sales tax compliant with minimal consequences. The fact that these states are participating in an amnesty program demonstrates that they are aware of non-compliant Amazon sellers in their midst.
On the other hand, if you only make a handful of sales per year in a state like Kansas or South Carolina, it could be that the cost of complying with sales tax in one of those states is prohibitive compared to any fines or penalties you’d be forced to pay if the state ultimately catches you. This is your business and your decision. (To help decide, you can read “When to Register for a Sales Tax Permit.”)
Q: What do the experts say?
A: “I think this is a great opportunity for FBA sellers, especially in a state like Texas. Texas is generally in most sellers’ top three sales states. This program will now allow sellers to register going forward without having to worry about past exposure in the participating states. It is not all great news though, as not all states have chosen to participate. With the program shining a new light on the topic, we may see increased enforcement efforts from states not participating, especially in California and Washington. So while I think everyone should participate in this program, sellers must have a strategy for dealing with the balance of the states.” — Michael Fleming of Peisner Johnson.
Q: Are international sellers eligible for the amnesty?
A: Yes. Any seller, no matter where you are based, is eligible to participate in the sales tax amnesty if you have built up past sales tax liability. You can read more about dealing with FBA sales tax as an international seller here.
Q: What should I be wary of?
A: Before you elect to participate, there are some important thing to think about:
- You are not eligible to participate in a state if a state has previously reached out to you about sales tax. If you’ve received a nexus questionnaire or other communication from the state, you are officially on their radar and not eligible to participate in the amnesty.
- You are not eligible to participate if you have already registered to collect sales tax in a state.
- You will be required to provide a good faith estimate of the last four years of back taxes that you owe to any state in which you’re applying for amnesty. Tread carefully here. While this is an “estimate,” Fleming warns that you should provide the most accurate estimate possible to avoid complications.
Q: Is there help out there?
A: If you have any questions about participating in the amnesty program, we recommend speaking with a sales tax expert like Peisner Johnson before you apply. (Here’s a list of other sales tax firms.)
Q: How do I know in which states I should register?
A: We recommend three steps to find out your sales tax liability:
- Step 1: Determine where your business activity gives you nexus. Nexus is just a fancy way to say “significant connection” to a state. You can read more about the factors that create sales tax nexus for your business here.
- Step 2: Get professional help. You can connect and share your transaction data with TaxJar, for instance. To determine how much in back taxes you owe (and help decide if you want to take advantage of the amnesty) connect your online shopping carts and marketplaces with TaxJar.
- Step 3: Determine your potential sales tax liability in a state. Again, TaxJar is a potential solution. With TaxJar, you can view each state where you are not collecting sales tax on your TaxJar dashboard.
Q: How do I participate in the amnesty program?
A: You should fill out “Multistate Voluntary Disclosure” paperwork from the Multistate Tax Commission. They will then work with the states to help you obtain amnesty. Note: Only fill out the information the commission asks for. It will initially work with the state on your behalf, while you remain anonymous. Do not register with each individual state. The only way to participate in the amnesty to proceed through the Multistate Tax Commission.
Q: What happens if I don’t participate in the Amazon FBA sales tax amnesty?
That’s the million dollar question (maybe literally) and one we’ve been trying to get an answer to from the Multistate Tax Commission and various other sources. We suspect that in the worst case scenario, some or all of the above states will request sales tax nexus data from Amazon and then begin sending out requests for information, or even begin the audit process with some businesses.
Sales tax expert Fleming from Peisner Johnson said he expects most states to ramp up their sales tax collection efforts after the amnesty ends.
In the best case scenario, some states may not have the resources to pursue Amazon FBA sellers (at least for the time being), so they may be content with the new Amazon FBA sellers who register to collect and remit sales tax under this amnesty.
Q: Where can I find out more?
- The MTC’s official page about the 2017 Marketplace Sellers Sales Tax Amnesty
- 2017 MTC Sales Tax Amnesty Program notice from the Prosper Show
- Watch our webinar & FAQ on the Sales Tax Amnesty with sales tax expert Mike Fleming of Peisner Johnson
Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a sales tax expert.
Photo by Michael Allen Smith published under Creative Commons License.