In this week’s webinar hosted by James Thomson of the Prosper Show, guest speaker Richard Cram of the Multistate Tax Commission (MTC) explained how ecommerce sellers can take advantage of sales tax amnesty, currently offered by 18 states. The amnesty program begins August 17 and ends October 17 and provides online sellers with back tax relief for sales tax, use tax and franchise tax.
The program is focused on ecommerce sellers who have inventory stored in one of the participating states, giving them physical nexus.
Businesses can either apply online or with hard copy registration applications. By applying online, a business owner can submit one application to the MTC that covers all indicated states. If the business chooses to apply manually, a separate application for each state must be completed, saved as a PDF, then emailed to the MTC.
Mr. Cram explained that every application submitted to the MTC will be assigned to an MTC staff member. Once a business submits the registration application, the MTC staff member will assign it a number in order to protect the anonymity of the business. The MTC submits the applications to the individual states. The business name is not revealed to the states until the application is approved and the Voluntary Disclosure Agreement (VDA) with the business owner’s signature is provided to the states as a last step.
Applicants may choose which of the participating states to register with. The MTC recommends registering with all participating states, however, in anticipation that Amazon may increase the number of states where they have warehouses and store inventory.
Participating states have set a deadline oft December 1, 2017 to receive applications from the MTC. With an estimated MTC processing time of 30-60 days, businesses should their submit applications to the MTC as soon as possible. Considering the 60-day turnaround, this means ideally applying before October 1, 2017.
Here are some of the questions asked of Mr. Cram by the webinar audience:
Q: Why are states going after marketplace sellers?
A: Sales tax represents about one-third of the general fund of most states. Closing this tax gap provides the states with revenue without requiring them to go to the voters to raise taxes.
Q: If a seller has recently registered with a state, will applying for amnesty hurt them?
A: It’s ok to go ahead and try for amnesty, since the application is anonymous until approved.
Q: By participating in this amnesty program, can a business’ information be disclosed to non-participating states?
A: No, except if there is a subpoena or statutory requirement to disclose. States will not honor a blanket request for information on a group of businesses (such as those applying for amnesty).
Q: Should sellers register in all participating states, or just where they think they have nexus?
A: The hope is that business will register in every participating state, in anticipation of Amazon’s plans for expanding their warehouse footprint.
Q: Is there any information about states that are coming after FBA states?
A: A lot of states are struggling with the issues of identifying online marketplace sellers. The tools for identifying them are improving, so states will be able to identify these business more easily in the future. Washington, California and Pennsylvania are particularly aggressive, and have visibility into seller’s shopping carts to see if that seller is collecting sales tax.
Q: Can foreign (non-US) sellers participate?
A: Yes, since they are subject to each state’s sales tax laws if they are selling into that state.
Q: What if you don’t apply for relief, and a state later discovers you?
A: The state will hit you with back taxes. They will send a “Nexus Questionnaire” asking how long you have been doing business in the state and the amount of sales. The state will build an assessment and estimate your liability – typically on the high side.
Then they will assess interest of 10-12%, plus penalties that can be around that amount or upwards of 25%. The penalties and interest can possibly be larger than the actual amount owed. Some states will even tack on another 50% on top of that, especially if they determine there has been mis-representation. And, there is no time limit for the state to collect.
Q: Why are businesses not eligible if they have already registered in participating states?
A: The focus is to get people to come forward. If a business is already registered, the states know who they are.
Q: Can you give an update on the Marketplace Fairness Act?
A: The states have given up on Congress addressing it.
Q: Is there a bounty program? Do states pay people for turning in businesses?
A: No rewards are offered, but “referrals” are appreciated.
Q: If my business registers only for sales tax, does that open me up to the state coming after other taxes?
A: Yes, the state will probably ask why you haven’t paid the other taxes.
Register for our August 15 webinar:
Sales Tax Amnesty – What Sellers Need to Know, with James Thomson.