If you didn't collect and remit sales tax in your Amazon FBA biz, this new tax amnesty program lets you off the hook. Yes, really!
Amnesty for back business taxes you didn't pay? Yes please!
The Multistate Tax Commission (which you probably haven't heard of before now) recently created a program offering sales tax amnesty to eCommerce sellers. Why, you ask? Because they want a piece of the action. Can you blame them? Ecommerce marketplace sales topped $1 trillion nationwide in 2016.
Technically, any ecommerce seller is required by law to collect and remit sales tax if they have inventory stored in a physical location. This requirement is known as “nexus.” (Remember that word.) Amazon FBA sellers, for example, have sales tax nexus in states where they store inventory in Amazon Fulfillment Centers.
Sidebar!!!! Yes. Yes. We know — to be nexus or not to be nexus — is a hot button among CPAs, accountants, and sellers alike about what actually triggers “nexus” and what doesn't. We interpret nexus to mean a physical presence such as building, inventory, employee, etc. creates a physical presence and physical presence creates nexus in most states.
This is our interpretation and you may be one who counts us conservative for it. That's ok! You should most definitely speak with your own accountant or sales tax advisor anyway. So, no hate mail about nexus — to each business owner's own here. It's ultimately, at the end of the day, the decision of the business owner and the risk that goes along with it. 🙂
Now, back to regular programming….
Where the rub is that eCommerce sellers inhabit an unusual space where they don't store the inventory themselves. If you're using Amazon FBA, dropshipper, or another company to fulfill orders for your customers, those companies are storing your products for you.
Up to this point, state tax authorities have largely turned a blind eye to eCommerce sellers and businesses selling through third-party marketplaces. It's really hard to keep track of all the sellers popping up all over the place, selling their wares in every state in the union.
However, when Amazon (FBA) sellers and other marketplace sellers do collect sales tax, it benefits the state where they do business. And, you know, it's the law and stuff.
That's why the MTC has come along to broker a deal between the Feds and ecommerce sellers.
And we have to say, this deal looks pretty sweet.
What You Need to Know About eCommerce Tax Amnesty
The MTC’s Amazon FBA Sales Tax Amnesty is designed to help Amazon FBA sellers become sales tax compliant, but without facing the fines and penalties they would face due to failing to collect and remit past due sales tax.
Here's the lowdown on how this tax amnesty program will function:
- To benefit from the tax amnesty, eCommerce sellers have to start collecting and remitting sales tax from now on. (No working the system here–once you start it, you're going to have to stick with it.)
- The states currently participating in the Multistate Voluntary Disclosure Program are: Alabama, Arizona, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Texas, Utah, Vermont, and Wisconsin. Other states are considering it, as well.
- Sellers can file for amnesty in multiple states.
- A number of states are talking about enacting legislation that requires eCommerce sellers to collect and remit sales tax. (Minnesota, Washington and Virginia are already doing it.) So it might be a good idea to get in the habit of doing so now, especially while you've got a financial incentive to motivate you!
- This amnesty period doesn't last forever! It only lasts from August 17th to October 17th, 2017. (So get it while it's hot.)
How Does This Work?
First of all, this isn't a ploy to trick eCommerce sellers into admitting that they haven't been collecting sales tax. No penalties are being leveled against sellers for prior unpaid sales tax.
Second, you may be thinking, “Wait…Amazon already collects tax for third-party sellers like me.” But in fact, Amazon only does this if you request this service, and it charges a fee for the service. Since sellers must remit and report collected taxes themselves anyway, you might as well do it yourself and save yourself any additional fees if states catch on to you.
Third, this amnesty program might not be right for everybody. If you make a lot of sales in a given state, and you're concerned that past due sales tax will come back and harm your business, then this is your moment to get compliant. However, if you only make a handful of sales per year in a given state, the cost of complying with sales tax in one of those states might be less than any fines or penalties you’d have to pay if the state comes looking for your tax.
If you're thinking about participating in the eCommerce tax amnesty program, you can check out the blogs from our friends and partners at Taxify or TaxJar where they are offering a few questions for your consideration:
- Are you concerned you might owe sales tax in one or more states?
- If you could resolve those back taxes with a little paperwork, would you?
- Would you resolve past taxes issues if that meant starting to collect sales tax?
The Bottom Line
This is a huge thing. A crazy-insane-huge thing. As our associate, James Prosper (of the Prosper Show) says, “Sales tax liability the #1 liability among FBA sellers today.”