Businesses Using Fulfillment Services for Online Sales Should Consider MTC Amnesty Program

| 9/7/2017

The Multistate Tax Commission (MTC) recently announced the Online Marketplace Seller Voluntary Disclosure Program for its member states. The program is available through Oct. 17, 2017. Participation in the program is limited to businesses that are online marketplace sellers using a fulfillment service such as Fulfillment by Amazon. For those that are eligible, the program allows for voluntary disclosure for both income and franchise tax and sales and use tax.

Unlike many amnesty and voluntary disclosure agreement (VDA) programs, the MTC program payment does not require prior-year income and franchise tax and sales and use tax (other than tax collected but not remitted). Most participating states will allow eligible taxpayers to begin filing income and franchise tax returns prospectively and collecting sales and use tax beginning on Dec. 1, 2017. Exceptions include Colorado, District of Columbia, Massachusetts, Minnesota, Nebraska, and Wisconsin, which are applying a limited look-back period for unpaid taxes.

Businesses should consider the following when deciding to participate in the MTC program:

  • Participation is expressly limited to businesses with nexus-creating activities resulting from involvement with a third-party fulfillment service. If a business has other contacts with the state that create nexus, the program is not available. The broad scope of nexus-creating activities might limit the program’s availability. However, businesses that do not qualify for the program could be eligible to participate in another MTC or state-sponsored VDA program, but prior-year income and franchise tax and sales and use tax likely would apply.
  • If sales and use tax has been collected but not remitted, the tax must be paid and no waiver of penalties and interest will be available for such amounts. However, having unremitted tax does not affect the seller’s eligibility to participate in the program.
  • Even if a state is not participating in the Online Marketplace Seller Voluntary Disclosure Program, most states will consider a VDA proposal or entertain a negotiated settlement. A three- or four-year look-back period typically will apply. Ohio, Washington, and Nevada, which impose gross receipts taxes, require careful consideration.
  • A business considering the Online Marketplace Seller Voluntary Disclosure Program will need to comply with the sales and use tax collection requirements for the collection period beginning Dec. 1, 2017. Some fulfillment companies will collect the tax on a business’s behalf. If this option is not available, the business will need to modify its billing system to comply with the effective date.

On Aug. 21, 2017, New Jersey announced a VDA program for sellers with so-called click-through nexus, which is similar to the MTC program. Sellers that have click-through nexus in New Jersey should review their circumstances to determine whether the state-sponsored VDA program or the MTC program is more advantageous. Participation in New Jersey’s program could bar a business from participating in the MTC initiative.

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