State & local tax alert: Limited-time voluntary disclosure program available for some online sellers
Eighteen states have joined together through the Multistate Tax Commission (MTC) to offer a limited-time voluntary disclosure program for businesses that may have created nexus by selling through an online marketplace provider. Affected businesses will need to file an application with the MTC before Oct.17, 2017, in order to be considered for the relief. An application can be filed anonymously by a representative on behalf of the taxpayer. If a business qualifies, the states will agree to waive sales/use and income/franchise back tax liabilities, including penalties and interest. Unlike most voluntary disclosure programs, this one applies to all prior tax periods without regard to any lookback period.
If you’re not familiar with the nexus issue created through online marketplaces, the problem typically arises when a seller contracts with an online marketplace provider like Amazon to facilitate the sale of its products. As part of the deal, the seller provides inventory to the online marketplace provider so that it can fulfill orders through its delivery systems. The marketplace provider stores the product in a warehouse or distribution center that works best for its processes. This storage can create nexus for the seller in the state where the inventory is stored, even though it’s quite possible that the seller is not immediately aware of the location.
In order to qualify for the voluntary disclosure program, a taxpayer needs to meet the following eligibility requirements:
- The seller can’t (a) be registered as a seller or retailer in the state, (b) have filed sales/use tax or income/franchise tax returns in the state, (c) have made any payments for such taxes to the state, and (d) have had any prior contact with the state concerning liability or potential liability for those taxes.
- The taxpayer must be an online seller using a marketplace provider (like Fulfillment by Amazon) to facilitate retail sales into the state. The online seller applying for voluntary disclosure must have no physical nexus in the state other than that created through the marketplace provider.
- The taxpayer must file an application with the MTC to participate in the voluntary disclosure program no later than Oct. 17, 2017, using the online form provided by the commission or a copy of the pdf version of the form on the MTC site submitted via email to the organization. The taxpayer must provide “complete and accurate” disclosure of all information requested in the application. A taxpayer that files an application anonymously through a representative will not be required to disclose its identity until the voluntary disclosure agreement is executed.
- The voluntary disclosure will provide relief from any past due sales/use tax and, if applicable any income/franchise tax liability, unless the taxpayer has collected but not remitted sales/use tax due to the state. The taxpayer must register as a seller or retailer with the state and timely collect, report, and remit sales/use tax in the state prospectively starting no later than Dec. 1, 2017. Applicable income/franchise tax filing requirements would begin with the tax year that includes the effective date of the voluntary disclosure agreement.
The 18 states working with the MTC on this voluntary disclosure program for online marketplace sellers are: Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Texas, Utah, Vermont, and Wisconsin. A taxpayer may choose which of the listed states it wishes to seek relief under this program for sales/use tax, income/franchise tax, or both.
Fourteen of the states are participating in the program as described by the MTC. Colorado, Nebraska, South Dakota, and Wisconsin each have some slight modifications. All participating states have agreed that they won’t openly share information with other jurisdictions on businesses that apply for voluntary disclosure. Sharing would only occur if it’s required by law, is pursuant to a court order, or the requesting governmental entity asks for information based on a specific taxpayer’s name and identification number. Blanket requests from other jurisdictions for the identity of participating taxpayers will not be honored.
As voluntary disclosure programs go, this one is particularly broad and short-lived; to participate, you must apply before Oct. 17, 2017.
As voluntary disclosure programs go, this one provides particularly broad relief for past tax liabilities and is also short-lived. For almost all of the states involved, there is no lookback period at all. But, to participate, you must apply before Oct. 17, 2017, and the sooner the better. If your initial application is found lacking certain information, it’s best to learn early enough that you can correct any defects.
The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.
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