Press Room: Tax Release

September 20, 2017

MTC Offers Special Amnesty Program to Online Sellers (Ends October 17, 2017)

The Multistate Tax Commission (MTC) has negotiated with a number of states to offer a special amnesty for online sellers that may have liability for sales and income taxes related to their in state inventory. The presence of the inventory in a state is sufficient to create nexus for sales taxes, corporate income taxes and personal income taxes regardless of whether the seller has any other presence within the state where its inventory is stored. Currently 24 states have agreed to participate in the MTC amnesty program.

Online sellers with potential tax liability could negotiate a settlement that could lead to some or all of their back taxes being forgiven, as well as interest and penalties. Online sellers must meet certain eligibility requirements and apply for amnesty between August 17, 2017 to October 17, 2017 along with other provisions and requirements. If accepted into the program, taxpayers may be required to estimate the taxes due during the lookback period, even though the taxes may be waived. Additionally, the taxpayers participating in the program must agree to register for and remit sales tax and income/franchise taxes going forward.

Who Should Consider Participation in the MTC Special Amnesty?

Online/remote sellers who are using a marketplace facilitator with owned inventory at the facilitator’s site likely have incurred nexus for both sales tax and income/franchise taxes. E-commerce sellers with inventory located at distribution/order-fulfillment centers in different states may also have nexus. Taxpayers who have not been collecting/remitting sales or income/franchise taxes in such states where they conduct business or incur nexus could be at risk and should consider participating in this limited-time amnesty program that could provide relief from back taxes and related penalty and interest.

What Taxes Are Covered?

The MTC special amnesty program applies to sales tax, franchise tax and income tax returns. For sales tax purposes, taxpayers must be registered and collecting the sales tax by December 1, 2017 for the initiative to apply. For franchise and income tax returns, the taxpayer must agree to begin filing returns for the tax year that includes December 1, 2017.

What States Are Participating?

As noted, 24 states have agreed to participate in the MTC amnesty program and additional states may join. Some states may limit participation to only sales taxes (e.g., Colorado) or may allow only a shorter lookback period versus prospectively only. For example, Wisconsin will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales tax, and including the prior tax years of 2015 and 2016 for income/franchise tax. Additionally, the amnesty will likely not extend to locally administered taxes. Participating states include:

Alabama

Arkansas

Colorado*

Connecticut

District of Columbia 

Florida

Idaho

Iowa

Kansas

Kentucky

Louisiana

Massachusetts

Minnesota

Missouri

Nebraska*

New Jersey

North Carolina

Oklahoma

South Dakota

Tennessee

Texas

Utah

Vermont

Wisconsin*

*Exceptions or special provisions may apply

General Eligibility Requirements

The states listed above will consider applications for voluntary disclosure received by MTC staff during the time period August 17, 2017 through October 17, 2017 from taxpayers meeting the following eligibility criteria:

  • The taxpayer has not yet registered with the state taxing authority, filed returns with such state for the tax type that the taxpayer is seeking voluntary disclosure relief for (sales/use tax, income/franchise tax, or both), made payments of such taxes to, or had any other prior contact with the state concerning liability or potential liability for such tax type;
  • The taxpayer is an online marketplace seller using a marketplace provider/facilitator (as defined by the MTC) to facilitate retail sales into the state and has no location, property, employees, or agents in the state, except for the online marketplace seller’s inventory stored in a third-party warehouse or fulfillment center located in the state or other nexus-creating activities of the marketplace provider/facilitator on behalf of the online marketplace seller in the state;
  • The taxpayer has electronically submitted an application  through  the MTC website;
  • The taxpayer agrees to register as a seller or retailer with the state and timely collect, report and remit sales tax and file returns on all taxable retail sales to customers in the state prospectively as of the effective date; and
  • If the taxpayer has any collected but unremitted sales/use tax, then the taxpayer agrees to remit such tax to the state, including penalties and interest.

As provided in the MTC Procedures of Multistate Voluntary Disclosure, a taxpayer can apply to a state for voluntary disclosure anonymously and will not be required to disclose its identity to the state until the taxpayer registers with the state and the voluntary disclosure agreement is executed. The taxpayer may choose which state and which tax type (sales/use tax, income/franchise tax or both) to seek voluntary disclosure relief for. The taxpayer can also withdraw the application for voluntary disclosure with any state at any time prior to execution of the voluntary disclosure agreement.

Takeaway

As noted, the special MTC amnesty program initiative is quite generous, and will only be available from August 17, 2017 - October 17, 2017. Under this special MTC program, eligible participants can clear up historical tax exposure (related to in state inventory) with little or no historical tax due, provided they register and comply prospectively with the related tax requirements. As is typical with most amnesty programs, it is likely the states will aggressively pursue their discovery activities and initiate audits against sellers who do not participate.