- On September 18, 2017
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Like the eclipse in August, a once-in-a-lifetime opportunity is being offered by the Multistate Tax Commission (“MTC”) for FBA sellers. The opportunity is complete forgiveness of past uncollected sales taxes in the participating states through the MTC’s FBA seller voluntary disclosure agreement (“VDA”) program. To qualify, the FBA seller must:
- Complete and submit the MTC forms
- Disclose a good faith estimate of the total amount of sales tax that would otherwise be due (on all taxable historical sales)
- Disclose a good faith estimate of state income tax due (corporate and/or personal) for the same period as sales tax
- Register in the various states and start collecting sales tax on sales from 12/1/2017 forward
The MTC VDA program began on August 17, 2017, and runs through October 17, 2017.
Where to File
The very first item a state will look for in determining whether a business has “nexus”, or sufficient activity within the state, is the presence of a person, place or thing. This is the legal issue the US Supreme Court determined in Quill (the Court determined that if none of these things were present, a state may not be able to assert nexus). While FBA sellers generally do not have people or a location in states other than their home state, they do have inventory in the non-home state where Amazon has a fulfillment/distribution center. As such, by having FBA seller-owned inventory stored at an Amazon fulfillment center, nexus has been triggered.
The FBA items sold clearly identify the FBA as the “seller” of the item and not Amazon. Again, under well-established laws and court cases, when an item is sold on behalf of a disclosed seller (the FBA), the seller is responsible for any sales tax collection requirements. This is a “known” or “disclosed principal” transaction.
Learn even more about the Sales Tax Amnesty
It does not defeat a state’s assertion of nexus simply because the FBA seller did not “know” their inventory was moved by Amazon to the location(s). It is clear in the FBA agreement that Amazon has the right to move the FBA’s inventory as Amazon sees fit to meet their projected sales. The FBA can query, without special permission from Amazon, the FBA’s inventory history to determine where the inventory came to rest. As such, it is strongly recommended that all FBA sellers file for amnesty in states where Amazon has a fulfillment center/distribution center. The other MTC participating states should be reviewed for potential historical exposure and potential nexus-triggering activities other than FBA-owned inventory.
By filing in the FBA states, FBA sellers can eliminate up to an estimated 40% of their total sales tax liability nationwide. Additionally, if the good faith estimate of historical liability is accurate, the FBA seller cannot be assessed by that jurisdiction for that period ever. In effect, for the “cost” of registering, collecting and remitting sales tax prospectively, the FBA seller has “insurance” from ever being assessed on the reported historical transactions.
But What if I Don’t
Letting the MTC VDA program go by puts Amazon FBA businesses at risk on several fronts. This includes:
- State Revenue projects – once the MTC VDA program has passed, there is the risk that the participating states will commence a program designed to identify FBA sellers by simply reviewing Amazon’s retail website. FBA sellers are clearly identified as the “seller” of their products. A simple query of registered retailers by the state will “catch” FBA sellers that did not participate in the MTC program. In addition, these states will be most inclined to assess penalties (upwards of 50%) and interest (10% – 15% of the tax due) on any amounts assessed.
- Audit risk – now that Amazon has nexus in all states, Amazon has been or soon will be audited by the various states. As part of these audits, Amazon will have to disclose all FBA transactions in the sample period. The states will (and have) issued questionnaires or audit notices to large populations of FBA sellers.
- Existing informational exchange agreements – while the MTC VDA program will not disclose participating FBA sellers under a blanket (or non-specific) request from a state, this does not prevent the various states from sharing the FBA information under an existing information sharing agreement. In effect, being registered only in the FBA sellers home state does not guarantee that the FBA sellers home state will hold that information from another state if there is an existing information sharing agreement in place. Almost all states have these agreements with at least one other state.
The MTC VDA program for FBA sellers offers a truly unique opportunity to eliminate historical uncollected sales tax and should be pursued in at least the participating FBA states. In addition to eliminating a significant portion of taxes, the MTC program, if properly completed, provides insurance against any future “change of heart” by the states to assess sales tax on the periods covered. Finally, foregoing this opportunity puts the FBA seller at material risk of not only the uncollected sales tax but also the corresponding penalty and interest costs.
About the Author(s):
Scott Letourneau is the founder of NCP and Sales Tax System. Since 1997, he has helped thousands of entrepreneurs launch their U.S. businesses with confidence. He is known as the business formation and sales tax expert and has worked with hundreds of Amazon FBA sellers over the past couple of years to navigate the complexities of sales tax. Scott has collaborated with the top legal and tax experts in the country to bring all the resources to the table for his clients to succeed.
Special Thanks to Ampersand Accounting for their contribution.
Ampersand Accounting is a full-service sales tax management and compliance organization, based in Atlanta, Georgia. Our team includes CPAs, MBAs, and CMIs (the highest designation for sales tax professionals). Together, we have over 100 years of experience in income tax, sales tax and tax technology. We specialize exclusively in the e-commerce retailing industry.
Need support with filing MTC VDA services, apply for sales tax permits?
www.SalesTaxSystem.com or email support@SalesTaxSystem.com
www.AmpersandAccounting.com or email firstname.lastname@example.org
Remember the MTC VDA deadline is October 17th and we do not recommend waiting until the last minute to register. The agreement includes being registered to collect and remit sales tax as of December 1st.