Amazon FBA Sellers Can Take Advantage of a New Sales Tax Amnesty
Amazon sellers can mitigate the possibility of paying backdated sales taxes to
14 now 25 U.S. states (well, 24 and the District of Columbia) through an amnesty program. The catch is that sellers will need to register for a sales tax permit in each of the 23 participating states between August 17 and October 17, 2017 November 1 (extended on October 11 by the Nexus Committee) to avoid the possibility of “look-back” taxes. The Multi-State Tax Commission has made this amnesty possible and is encouraging sellers to take advantage of this grace period—especially if they’re worried about their sales tax liability hurting their business.
Amazon Tax Amnesty on This Scale Is Unprecedented
This week’s announcement regarding tax amnesty for Amazon sellers using FBA is a step in the right direction, albeit an imperfect one (well, more incomplete than imperfect given that it too isn’t applicable nationwide). The MTC Sales Tax Amnesty Program is the result of a conversation begun at the 2017 PROSPER Show in March where Richard Cram (Director of the National Nexus Program for the Multi-State Tax Commission) presented to more than 1,000 established Amazon sellers. Based on subsequent conversations with several large sellers, as well as taking into account challenges posed by James Thomson (PROSPER Show President), Cram developed and put forth a multistate sales tax amnesty program to which more than a dozen states agreed to participate (more are expected to join in coming weeks).
What Amazon FBA Sellers Need to Know
In the upcoming days, we’ll bring you continuing coverage and updates in the form of interviews and go-live events. Jennifer from TaxJar was able to give us some clarification on what this sales tax amnesty means for Amazon sellers.
In the meantime, and as the story develops, here’s what Amazon FBA sellers need to know. The following states are currently slated to participate in the program, though not all have Amazon fulfillment centers:
- Colorado (Colorado will waive any back tax liability for uncollected sales/use tax. However, Colorado will not waive back tax liability for income tax beyond its normal 4-year look-back period. Colorado notes that it already has a small seller income tax nexus exception for sales less than $500,000 into the state.)
- District of Columbia (D.C.’s standard look-back period is 3 years for sales/use and income/franchise tax. D.C. will consider granting shorter or no look-back period for applications received under this initiative.)
- Massachusetts (Massachusetts requires compliance with its standard 3-year look-back period; this look-back period in a particular case may be less than 3 years, depending on when vendor nexus was created.)
- Minnesota (Minnesota’s customary look-back period is 3 years for sales/use tax and 4 years (3 look-back years and 1 current year) for income/franchise tax. Minnesota will grant shorter look-back periods to the time when the marketplace seller created nexus.)
- Nebraska (Nebraska will consider waiving back tax liability for uncollected sales/use tax and income tax.)
- New Jersey
- North Carolina
- Rhode Island
- South Dakota (South Dakota imposes sales tax but not income tax.)
- Wisconsin (Wisconsin will require payment of back tax and interest for a look-back period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax.)
Additional states are considering participation.
- Pro tip from Jen of TaxJar: Find out in which states your inventory is stored and get a sense of your past sales-tax liability and to which state[s] it is owed so you can assess your risk. Chances are that the Amnesty program is a good deal for you.
- Pro tip from Jeff of Seller Labs: There’s more to nexus than just where your inventory is warehoused so dig deeper and find out if you have other tax ties to these states.
More About The Amnesty Program
The Sales Tax Amnesty program utilizes the Multi-State Tax Commission’s Online Marketplace Seller Voluntary Disclosure Initiative
to offer online sellers the opportunity to register for tax collection immediately and to avoid back taxes, interest, and penalties. This waiver of back-tax liability (a “no look-back period”) means that sellers in states where the program is available may register during the enrollment period and start collecting and remitting sales tax. In exchange, these sellers will not be subject to any “look-back” at past years of unpaid sales tax in these states.
The Amnesty program will become available on August 17 and it will run through October 17, 2017. After this date, any Voluntary Disclosure efforts are subject to the “look-back” period to figure out unpaid back taxes (and any associated penalties) each seller owes to the specific state.
The Bottom Line: The Amnesty Program Is a No-Brainer for Sellers
The MTC Sales Tax Amnesty Program is a big deal and one that may or may not be offered again, certainly not likely with this many states working together. That makes this a critical juncture for Amazon FBA sellers not currently addressing state sales-tax issues properly.
It’s With the advent of the Amnesty program, sellers are faced with the choice to get on board with proper procedures of collecting sales tax and disclosing figures and paying properly going forward (in exchange for forgiveness for failing to do so in the past) OR to continue to ignore the issue and risk getting caught or audited.
Needless to say, we recommend the former option, which will indeed require paperwork now, some changes within your Seller Central Account, and payment going forward (Amazon can help, for a fee, of course), but will ensure a clean-slate past and piece of mind in the future.
For more information, check out what our friend Jennifer Dunn at TaxJar has to say about The Amazon FBA Sales Tax Amnesty. Jen is an ace when it comes to these matters and what she shares at Your Top 7 Amazon Sales Tax Questions, Answered by TaxJar is both helpful and accessible (unlike so much other tax-related info). And finally, while you’re getting your tax ducks in a row, you might as well check for any other sales tax issues in need of attention and rectify those.
Jessica Wright is the in-house "Amazon Genius" for the Seller Labs Managed Services team. Her focus is working with our team members and clients to educate and answer tough Amazon questions in areas outside of PPC advertising. With 15 years of manufacturing and eCommerce experience on both the brand and agency sides of the business, Jessica is knowledgeable in all things Amazon and is constantly seeking out the latest updates to help Seller Labs clients stay ahead.