Over the past few years, states have focused their attention on developing tax laws that “level the playing field” between traditional and online retailers.
At issue is the sales and other tax collection requirements for retailers. For several years online retailers have had an advantage in this regard resulting in more and more consumers selecting to make purchases online to realize additional savings. States have implemented various tax laws defining when nexus exists (taxable activity) and what taxes need to be paid. Unfortunately for online retailers, each state has different laws that are updated quite regularly. This quick pace of change has left many out of compliance with state tax laws. What’s worse is that many are not aware of the issue. To help these retailers come into compliance before facing state-imposed penalties, the Multistate Tax Commission has implemented a voluntary disclosure program, which has been adopted by several states. To help clients, prospects and others become familiar with the program, Hanson & Co. has provided a summary below.
Key Program Details
The Multistate Tax Commission (Commission) recently announced a new voluntary disclosure program in which 18 states are participating. It is designed to help marketplace sellers who offer goods though an online marketplace provider or facilitator (like the Amazon FBA program) become compliant with state tax laws in the various jurisdictions. The 18 states participating are Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont and Wisconsin. The program will be in effect from August 17, 2017 through October 17, 2017, although the dates are subject to change.
Do I Qualify?
To participate in the program, the taxpayer must be an online marketplace seller using a facilitator (such as Amazon FBA) to facilitate the retail sales of products into states where they have no employees, property or local agent to represent them. It’s important to note that the taxpayer must have inventory stored in a state with a third-party provider or be engaged in another nexus-creating activity. A facilitator is defined as a person or company that facilitates retail sales by an online seller through listing the products online for sale that are subject to sales/use tax, collecting and remitting payments and fulfilling the order.
Key Exceptions Include:
- Prior Communication – A taxpayer is not eligible to participate if they have received prior communication from a state about sales and other taxes. Examples of this includes nexus questionnaires or documentation requests related to sales/use taxes. If a taxpayer has received such communication, then they are not eligible to participate.
- Registered to Collect Sales Tax – A taxpayer is not eligible to participate in the program if they have already registered with the state to collect sales tax.
What are the Benefits?
All participating states (except Wisconsin and Colorado) have agreed to waive sales/use tax and income/franchise tax liability, including interest and penalties, for prior tax periods. This is a significant tax savings opportunity because most state amnesty programs require payment of back tax liability and interest for the previous three to four years. Colorado will waive uncollected sales/use tax liability for prior tax years, but it will require payment of back tax liability and interest for a four-year lookback period for income/franchise tax. To receive this benefit, participants must register to collect, report and remit sales and use tax (on all sales) and file returns with each state no later than December 1, 2017.
For many qualifying taxpayers, this initiative offers an effortless way to come into compliance without worrying about interest, fees and penalties. However, before participating or disclosing any information it’s essential to review your situation with an advisor to clearly understand the potential benefits available and consequences. If you have questions about the initiative or other state and local tax issues, Hanson & Co. can help. For additional information please call us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon!