When it comes to takes to sales and use tax not everything is so clear when it comes to nexus. States for quite some time have been complaining that they are not collecting enough sales tax from interest to meet their budget needs.
States have been working to narrow the gap between brick and mortal companies located in their states and internet retail companies.
For some time, states have created new nexus rules that include click-through nexus, affiliated nexus in addition to new taxes based on gross sales into the state as they attempt to move away from the Quill Corp v. North Dakota Supreme Court Ruling (504 U.S. 298 (1992)) that created the rules for physical nexus.
Physical nexus under Quill Corp v. North Dakota included sales, property, and payroll. More and more states have begun moving away from the property and payroll to define physical nexus as simply as sales into and within their state.
For what seems like years, the states have waiting on Congress to pass a new law called the Marketplace Fairness Tax where companies would be forced to collect sales and use tax and remit it the states regardless if the company had a physical within the state.
After several years, the Amazon has finally been collecting and remitting sales and use tax to the states. However, the states have begun looking at the Amazon structure that includes Fulfillment by Amazon.
Under Fulfillment by Amazon, sellers contract through Amazon to sell their products through Amazon’s marketplace using Amazon to fulfill and ship their orders to the customers.
The majority of these sellers are small so most do not have complex order and tax systems and rely on Amazon to fulfill their orders.
However, that has not stopped the states and the Multi-state tax commission from going after the sellers using the Fulfillment by Amazon sellers.
The Multi-state Tax Commission has proposed a sales and use tax amnesty program which runs from August 17 to October 17, 2017 targeting the Fulfillment by Amazon sellers to come forward and pay and remit sales and use tax.
States participating in the Multi-state Tax Commission are Alabama, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, North Carolina, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Wisconsin.
In order to be consider and qualify for tax amnesty under the voluntary disclosure program, the taxpayer must meet certain criteria according to the Multi-state Tax Commission.
“The taxpayer has not yet registered with the state taxing authority, filed returns with such state for the tax type that the taxpayer is seeking voluntary disclosure relief for (sales/use tax, income/franchise tax, or both), made payments of such taxes to, or had any other prior contact with the state concerning liability or potential liability for such tax type.
Note: North Carolina will consider an application by an online marketplace seller to participate in the initiative that has received prior contact concerning tax liability or potential tax liability.
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 represents that it does not have any nexus-creating contacts in the state, except for the online marketplace seller’s inventory stored in a third-party warehouse or fulfillment center located in the state or other nexus-creating activities performed by 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 (including sortation services) to the online marketplace seller.
The taxpayer has timely applied electronically (using either the online application or PDF application form and emailed to MTC staff at email address email@example.com) 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.
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.
Note: States will not waive tax, penalties or interest on collected but unremitted taxes.”
Source: Multi-state Tax Commission http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative
In order to participate in the Multi-state Tax Commission tax amnesty program, sellers (taxpayers) need to determine their potential state(s) tax liability they may have under Fulfillment by Amazon Tax Amnesty Program (Voluntary Disclosure).
Rumors circulating from the states is that the states will petition Amazon to turn over it’s sellers list who use the Fulfillment by Amazon Program.
You should contact a CPA or tax professional should you have questions or need assistant with voluntary disclosures, tax amnesty programs, on any potential tax liability.
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