Online Sellers to be Given 60-Day Amnesty Period Before Being Subject to Sales Tax

Chris Gaetano
Published Date:
Aug 10, 2017

A consortium of state-level tax authorities is planning to give online sellers a 60-day grace period, starting from Aug. 17, to disclose outstanding liabilities stemming from their business activities as a way to get more retailers to start collecting sales and use taxes, according to Accounting Today.

The move comes amid states becoming increasingly aggressive with regards to online retailers when it comes to what constitutes nexus. Nexus historically has tended to be based on where the seller lives, but states are increasingly aware that this model does not reflect today's economic realities, where more and more commerce takes place online.

As a result, more states have been changing their nexus standards to where a company's customers are, versus where the business happens to be based. New York, itself, is one such state, having recently adopted economic nexus as part of its corporate tax reform. Under the new rules, if a company has at least $1 million of market-based receipts in New York, then it is considered to have nexus there and, thus, owes the state taxes on those receipts. Other states, like Ohio, are going further by adopting what's known as "click-through nexus" where a taxable presence is created by entering into an agreement with an instate resident, who for a commission or other consideration, refers potential customers by a link on a website, in-person oral presentation, etc., to the seller. Meanwhile other states have adopted an "inventory nexus" standard, that counts having inventory stored in the state as establishing nexus, which is the primary focus of this program. 

The voluntary disclosure initiative will give sellers 60 days, starting from Aug. 17, to register with their relevant authorities and disclose any outstanding tax liabilities they may have. the states will then waive tax liability, interest and penalties without regard to any lookback period (though Colorado, Nebraska, South Dakota and Wisconsin have certain exceptions to the agreement). The states will also not disclose to other taxing jurisdictions the identity of any taxpayer entering into a voluntary disclosure agreement under this special time-limited initiative, except as required by law, pursuant to a court order, or in response to an inter-government exchange of information agreement in which the requesting entity provides the taxpayer’s name and taxpayer identification number. 

Currently, the tax authorities of only the following states have agreed to the terms of the programs: Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Texas, Utah, Vermont and Wisconsin. However given the aforementioned trend of states expanding their standards for what constitutes nexus, those outside these states but with customers within them may want to look into whether they could benefit from the program. 

Those meeting the following criteria are eligible for the program:

1) The taxpayer has not yet registered as a seller or retailer, filed sales/use tax or income/franchise tax returns with, made payments of such taxes to, or had any other prior contact with the state concerning liability or potential liability for sales/use taxes or income/franchise taxes.

2) The taxpayer is an online marketplace seller using a marketplace provider/facilitator (such as the Amazon FBA program or similar platform or program) to facilitate retail sales into the state and has no physical presence nexus in the state, except for the online marketplace seller’s inventory stored in a third-party fulfillment center located in the state or through other nexus-creating activities of the marketplace provider/facilitator on behalf of the online marketplace seller in the state.  A “marketplace provider/facilitator” is a person who facilitates a retail sale by an online marketplace seller by (1) listing or advertising for sale by the online marketplace seller on a website, tangible personal property, services, or digital goods that are subject to sales/use tax; (2) either directly or indirectly through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the online marketplace seller; and provides fulfillment services to the online marketplace seller.
3) The taxpayer has timely applied electronically (using either the online application or  PDF application form and emailed to MTC staff at email address to the state for voluntary disclosure relief through the MTC Multistate Voluntary Disclosure Program (MVDP), in accordance with the process set forth.  The taxpayer will need to state in the application that the taxpayer is applying for voluntary disclosure relief under this initiative and provide complete and accurate disclosure of the information requested, which will be used to establish eligibility. Note: The application form requests that the applicant provide an estimate of back tax liability to the state for the prior 4 years and contains the statement:  “National Nexus Program staff will not process an application when the good-faith estimate for all tax-types for the look-back period is less than $500 in this state.”  Please be advised that applications received under this special time-limited online marketplace seller voluntary disclosure initiative will be processed, even when estimated back tax liability is less than $500.  Also, response times permitted in this initiative may be shorter than those provided in the MTC Procedures for Voluntary Disclosure, in order to ensure that the taxpayer timely complies with Paragraph 4 below.

4) The taxpayer is seeking relief from any past due sales/use tax, including interest and penalties, and if applicable, income/franchise tax liability, including interest and penalties, in connection with its online retail sales activity in the state, except for sales/use tax collected but not remitted, with the taxpayer agreeing to register as a seller or retailer with the state and timely collect, report and remit sales/use tax and file returns on all taxable retail sales to customers in the state prospectively as of the effective date (not later than December 1, 2017—taxpayers are encouraged to commence collection and remittance of sales/use tax prior to that date) of the voluntary disclosure agreement. If subject to income/franchise tax, the taxpayer further agrees to timely file income/franchise returns and pay such taxes due, commencing with the tax year including the effective date (not later than December 1, 2017) of the voluntary disclosure agreement.  If the taxpayer has any collected but unremitted sales/use tax, then the taxpayer agrees to remit such tax to the state, including penalties and interest.

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