Multistate Tax Commission Announces Voluntary Disclosure Program for Online Marketplace Sellers

Synopsis

The Multistate Tax Commission (MTC) recently announced a Voluntary Disclosure Program, called the Online Marketplace Seller Voluntary Disclosure Initiative (the Program). The Program seeks to entice remote sellers who use a “marketplace provider/facilitator,” such as the Amazon FBA program or other similar program, to register and prospectively begin collecting sales tax in participating states. In exchange, the eighteen participating states will generally waive all past interest, penalties, and tax liabilities. The Program runs from August 17 through October 17, 2017.

Program Eligibility

To be eligible for the Program, an online retailer (Retailer) must be using a marketplace facilitator, such as “Fulfillment by Amazon” (FBA) or other similar program, to facilitate retail sales and, with respect to the states participating in the Program, the Retailer:

Benefits of the Online Marketplace Seller Voluntary Disclosure Initiative

The Program is not the MTC’s standard Voluntary Disclosure Agreement (VDA) Program, which requires participating taxpayers to file tax returns and pay tax liabilities for a specified number of prior tax years, commonly known as a “look-back period.”

This Program is considerably more beneficial for taxpayers since it will generally result in the waiver of all prior sales and use tax liabilities, income/franchise tax liabilities, penalties and interest, in exchange for taxpayers agreeing to register for, collect and file sales tax returns prospectively.

Note that the benefits of the program will vary somewhat among the participating states. For example, Wisconsin will require payment of back taxes and interest for a lookback period beginning in 2015.  

Currently, the following 18 states are participating in the MTC Online Marketplace Seller Voluntary Disclosure Initiative: 

However, additional states may join and be added to the list of participating states no later than August 17, 2017.  

Application Process

To participate in the Program, an application must be completed either online at the MTC’s website or via PDF emailed directly to the MTC and received by the MTC between August 17 and October 17, 2017. The application must state that the taxpayer is applying for voluntary disclosure relief under the Online Marketplace Seller Voluntary Disclosure Initiative, indicate the specific state(s) in which a VDA is being sought, and provide complete and accurate disclosure of the information requested in the application.  Applications to the Program can be made anonymously, and taxpayers will not be required to disclose their identity until the voluntary disclosure agreement is executed.

Note that due to the short-term nature of the initiative, response times for this program may be shorter than those provided in the MTC’s standard VDA procedures. Also note that the standard MTC VDA program application is used for the initiative. That application form requires that a taxpayer have an estimated total tax liability of at least $500. However, for the Program, there is no minimum tax liability requirement.

What Does CohnReznick Think?

The Program sets forth an interesting offer for Retailers using third-parties to solicit sales or store goods on the Retailer’s behalf.  While a number of states have adopted “economic nexus” rules for sales tax reporting, physical presence (i.e., employees, offices, property) remains the nexus standard for sales tax purposes until such time as Quill Corp. v. North Dakota, (1992) 504 US 298, is overturned.  Where a Retailer is using Amazon’s FBA or similar programs, and such third-party is storing the Retailer’s goods, the physical presence nexus requirement could be satisfied.  It is critical that on-line retailers understand where their goods are being stored, as well as where third-parties are soliciting sales on the Retailer’s behalf, and, when required by a specific jurisdiction, complying with the tax reporting rules in such jurisdictions.  

In addition to the discussion of the Program and nexus rules discussed above, we would be remiss if we did not briefly address the adoption of “Notice” and “Reporting” requirements by a number of states (see our Tax Alert dated July 14, 2017).  Such reporting requirements can be time-consuming and can involve significant penalties for non-compliance.   Retailers considering participating in the Program should consider the costs of complying with these provisions as well.  

Contact

For more information, please contact Scott Smith, Director, State and Local Tax Services, at scott.smith@cohnreznick.com or at 973-364-7720 or Krista Schipp, Director, State and Local Tax Services, at krista.schipp@cohnreznick.com or at 818-205-2616.


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.