Avalara Resource Center
Sales tax amnesty
A limited window to get relief on past sales tax recently concluded in 24+ states. While open, it provided a unique opportunity for qualifying sellers to erase back sales/use and income/franchise tax liability and become compliant. Learn more about the Multistate Tax Commission Online Marketplace Seller Voluntary Disclosure Initiative below.
What is the marketplace seller sales tax amnesty program?
The Aug. 17–Nov. 1 amnesty program provided an opportunity for online marketplace sellers that hadn’t been collecting tax in states where they should to have back taxes, interest, and penalties forgiven. The amnesty was available in participating states only and applied 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 Dec. 1, 2017, or within 30 days of receiving notice that the states have signed the agreement.
“This [amnesty program] is a once-in-a-lifetime opportunity. Many sellers aren’t charging sales tax, or are only filing in their home state, and they’re taking their chances. This is their chance to get it all right, and get it done.”
— Chris Marantette, President of NetRush, a digital retail agency representing premium brands on the Amazon marketplace
What are the details of the tax amnesty program?
Who: United States and foreign businesses that use a marketplace provider, such as Fulfillment by Amazon (FBA) or eBay, to fulfill orders on their behalf — such businesses are oftentimes known as marketplace sellers. The program was only open to sellers with inventory stored in a third-party fulfillment center in one or more of the participating states. It was not open to sellers with any other tie to those states that creates nexus, the obligation to collect sales tax, or sellers with 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:Aug. 17–Nov. 1, 2017. Taxpayers wishing to participate had to file an application during this window.
Where: Alabama, Arkansas, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Missouri, New Jersey, North Carolina, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, and Vermont waived all applicable back taxes. Colorado1, Massachusetts2, Minnesota3, Nebraska4, Washington, D.C.5, and Wisconsin6 offered limited amnesty.
How: Interested businesses and states worked together via the Multistate Tax Commission (MTC) Voluntary Disclosure Program. Business info wasn't revealed to states until both parties (the state and the business) signed the voluntary disclosure agreement.
1 Colorado is not assessing any back liability for uncollected sales/use tax, and it agrees not to assess income tax for the time period prior to its four-year look-back period. Income tax due for the tax years included in its four-year look-back period, plus interest, must be paid.
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 may consider waiving back sales/use tax and income tax liability.
5 Washington, D.C. may consider a shorter look-back period than its typical three years for both sales/use and income/franchise tax.
6 Wisconsin is requiring businesses to remit unpaid sales/use and income/franchise tax plus interest going back to Jan. 1, 2015.
It's always best to discuss what’s right for you with your tax advisor. If you don’t have a one, consider one of these.
For U.S. tax needs:
- Peisner Johnson & Company is an accounting firm that has limited its practice solely to state and local tax consulting since its founding 25 years ago. The firm has helped thousands of companies in virtually every industry. About seven years ago, Peisner created a new service line focusing on ecommerce issues and is currently recognized as the leader in this field, especially when it comes to the FBA program.
- Peterson Sullivan LLP has served clients in a variety of industries for more than 60 years. The State and Local Tax Team assists clients with the constantly changing state and local tax laws and regulations based on core values of integrity, respect and commitment. Peterson Sullivan LLP is part of Moore Stephens North America, an association of more than 360 accounting firms.
Contact: Rachel Le Mieux, firstname.lastname@example.org
- TaxOps is an award-winning business tax specialty and advisory firm that delivers customized tax solutions to dynamic businesses nationwide. In addition to tax outsourcing through TaxOps, the firm offers targeted tax saving solutions and efficiency expertise through TaxOps Minimizationand TaxOptimization.
Contact: Judy Vorndran, email@example.com
- YETTER/Sales Tax Institute offers a comprehensive and personalized program to help determine if the MTC amnesty program is right for your business. Click here to learn more or to sign up for YETTER’s amnesty consultation and application program to help resolve prior tax liabilities.
For international tax needs:
- PrietoDion Consulting is a U.S. tax advisory firm that specializes in addressing the unique concerns and specific issues of foreign (non-U.S.) FBA sellers and other sellers engaged in U.S. ecommerce. PrietoDion works with FBA and ecommerce 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
This is a question for you and your tax advisor to tackle. If you own inventory that’s housed in a third-party fulfillment center in a state where you do not currently collect tax, you may be out of compliance. Being out of compliance 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 out of compliance. The tax amnesty program provided an opportunity for you to erase your back tax liability and start complying with state tax laws.
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 out of compliance.
The application period closed on Nov. 1, 2017.
The amnesty program had a lot of people asking “what’s the catch?” But there wasn’t necessarily one. Participating states were looking to bring unidentified sellers into compliance so they could broaden their tax revenue streams.
You have to collect and file applicable taxes in the states where you were granted 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 from another state about a particular seller.
You may luck out and continue flying under the radar of states where you’re out of compliance. However, now that the tax amnesty program has concluded, states are likely to increase efforts to uncover noncompliant 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.
One way or another, states are determined to get the tax revenue they're due; and there’s an overwhelming trend toward bringing more businesses into compliance.
You can keep trying to stay off states’ radars and keep those fingers crossed you won’t be audited. Or you can participate in a voluntary disclosure program directly with a state, if possible. A voluntary disclosure program is akin to an amnesty program in that it may waive some of the penalties and interest and may also offer a reduced look-back period.
The MTC amnesty program concluded on Nov. 1, 2017. If you're interested in learning about other options to increase compliance, Avalara recommends working with a tax advisor, like one of the experts listed above, on any voluntary disclosure process.
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