Are You Using Fulfillment by Amazon? Clock is Ticking to Take Advantage of MTC Program and Mitigate Tax Risks

    Retailers using Fulfillment by Amazon (FBA) or other similar third-party fulfillment networks to store their products and provide pick, pack, ship, and customer support services receive their net proceeds from the marketplace facilitator, including sales tax collection. If, however, the retailer is not collecting sales tax on taxable retail sales and remitting such tax to the appropriate state(s), it can create joint liability, resulting in the state potentially auditing and assessing tax to the seller and/or the buyer. The impact to the seller could be significant – amounting to an approximate 8% reduction in gross margins, excluding the potential for interest and penalty charges. 
    Determining where sales tax nexus exists and collecting and remitting sales/use tax where required is critical. Where such requirement has existed for many years and a retailer owes tax, retailers can mitigate exposure by taking advantage of the Multistate Tax Commission’s (MTC) Voluntary Disclosure Program for Online Marketplace Sellers. Similar to an amnesty program, the Voluntary Disclosure Program includes 24 participating states, with most participating states generally waiving all past tax, interest, and penalties for both sales/use and state income tax, in exchange for the taxpayer agreeing to register and prospectively collecting sales tax and file income/franchise tax returns in the participating states. 
    The window of opportunity to benefit from the program is quickly closing, with October 17, 2017 the due date for applying. Visit the MTC website for details and to access the application.
    Program eligibility includes: 

    • Must be using a marketplace facilitator, such as FBA or other similar program, to facilitate retail sales;
    • Must not be registered as a seller or retailer;
    • Cannot have filed sales/use or income/franchise tax returns or been contacted that such taxes may be due;
    • Must have no physical presence (such as employees or office locations) other than inventory stored at a third-party fulfillment center located in a participating state; and
    • Must agree to register with the state as a seller or retailer and timely begin collecting, reporting, and remitting sales and use tax and filing returns (and income/franchise tax returns, if applicable) not later than December 1, 2017.

    Review CohnReznick’s prior communication on this program for additional details. To understand your tax risk(s) and mitigate potential exposures, please contact:
    Scott Smith 
    Director, State and Local Tax Services
    George Sparacio
    Tax Partner
    Stephen Wyss
    Partner and Retail and Consumer Products Industry Practice Leader
    Learn more about CohnReznick’s Retail and Consumer Products Industry Practice.
    Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.