As eCommerce sellers are probably well aware, sales tax is governed at the state level. From time to time, in the interest of collecting past due or uncollected sales tax from retailers, an individual state will hold a “sales tax amnesty” that allows online sellers to become sales tax compliant while avoiding paying the entirety of fine and penalties they may owe.
This fall, an unprecedented sales tax amnesty has occurred. Twenty-two states (and Washington DC) have banded together to offer a sales tax amnesty to people who sell on Amazon FBA and other online marketplaces.
What does this mean? Online marketplace sellers who were not collecting sales tax – maybe they were not aware of their liability or they felt like they owed too much money in back taxes to ever become compliant – can now “get off the hook free” of past due sales tax, penalties and interest. However, there’s a little more to it than that. These are the vital details to keep in mind.
The 5 W’s of Sales Tax Amnesty
Who is in charge of the amnesty?
The Multistate Tax Commission (MTC) is “an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws.” They worked with all the participating states to put together this amnesty. You can read the MTC’s information about the amnesty here.
What exactly is the amnesty?
The full name of the amnesty is the “Online Marketplace Sellers’ Voluntary Disclosure Initiative.”
It all came about when Richard Cram of the MTC met with online marketplace sellers at the Prosper Show in March of 2017. He realized that many online marketplace sellers – such as sellers who have sales tax nexus in a state due to storing inventory through Amazon FBA – were not sales tax compliant, and were worried about what to do about sales tax. After all, if a seller is caught and audited by the state, they are on the hook for not just the past due sales tax, but also penalties and interest on the sales tax they didn’t collect. Many sellers, who through no fault of their own many not have realized they had sales tax nexus, were terrified about what to do next. A huge sales tax bill could potentially break their businesses.
The MTC worked with 23 states to make an unprecedented offer – allow online sellers with past due sales tax to get compliant and start collecting sales tax going forward, and the state would forgive all past due sales tax, penalties and interest.
For online sellers with built up sales tax liability, the amnesty is a great chance to start over with a clean slate.
Where does the amnesty take place?
These states are participating:
- Colorado (upcoming Amazon state; Colorado will waive sales and use tax, but will not waive income tax if you also owe back income tax. Read more here.)
- Connecticut (Amazon state)
- Florida (Amazon state)
- Kansas (Amazon state)
- Kentucky (Amazon state)
- Massachusetts (Amazon state)
- Minnesota (Amazon state)
- New Jersey (Amazon state)
- North Carolina
- South Dakota (with provisions; read more here)
- Texas (Amazon state)
- Tennessee (Amazon state)
- Utah (upcoming Amazon state)
- Washington DC (may have a look back period, read more here.)
- Wisconsin (Amazon state, with provisions including a limited look-back period. Read more here.)
When does the amnesty take place?
Interested online sellers must apply for amnesty between August 17, 2017 – November 1, 2017.
Here’s a video showing the amnesty application process:
Why sales tax amnesty? Why now?
Aside from the fact that many online marketplace sellers were unaware that they even had sales tax liability, other factors influenced the state’s willingness to grant amnesty.
For one, state sales tax revenues have declined due to the growth of eCommerce. Some of this is simply because online sellers are not required to collect sales tax in states where they do not have sales tax nexus. However, in some cases, states are correct that online sellers are simply not aware of this liability. This amnesty is designed to help online sellers get sales tax compliant, without penalizing small businesses who may not have realized they should have been collecting sales tax in the first place.
Who should take advantage of the amnesty?
Every business decision you make is up to you, the individual seller. Sellers who are worried about past due sales tax may want to take advantage of the amnesty. You can read more about WHO should take advantage of the amnesty here.
Unfortunately, online sellers are NOT eligible for the amnesty if any of the following apply to you:
- You have already registered for a sales tax permit in a state
- Have already been contacted by the state regarding sales tax – If a state has already sent you an inquiry letter, and audit notice or other information regarding past due sales tax or other sales tax liability, then you are not eligible for the amnesty
If you wish to apply, don’t delay. The last day to apply for amnesty is October 17, 2017!
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