FGMK TAX ALERT: State Voluntary Disclosure Program for Amazon Remote Sellers

Summary

The Multistate Tax Commission (“MTC”) has just announced that it is going forward with a voluntary disclosure program for sellers on Amazon who have created nexus in a state because of their participation in the Fulfillment by Amazon (“FBA”) program.  The MTC is an intergovernmental state tax agency that works on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws that apply to multistate and multinational enterprises.

What is the FBA Program and How Does it Create State Tax Nexus? 

Under the FBA program, sellers can list their products with Amazon and have Amazon hold their products at one of its warehouses before shipping products to the purchaser.  The presence of inventory in a state is sufficient to create nexus for sales tax, corporate tax, and personal income tax purposes, regardless of whether the seller has any other presence within the state where the inventory is stored.

Voluntary Disclosure Program

The following states are permitting Amazon FBA sellers to register their business during a voluntary disclosure period beginning on August 17, 2017 and ending on October 17, 2017

  1. Alabama
  2. Arkansas
  3. Colorado
  4. Connecticut
  5. Idaho
  6. Iowa
  7. Kansas
  8. Kentucky
  9. Louisiana
  10. Nebraska
  11. New Jersey
  12. Oklahoma
  13. Texas
  14. Utah
  15. Vermont

Other states may follow.  The MTC is conducting the program on an anonymous basis, such that an applicant need not disclose its identity prior to the voluntary disclosure agreement being signed and executed.  The MTC will not disclose the agreement or any of its terms to a non-participating state.

Lookback Period

The above states have agreed to waive any lookback period for FBA sellers.  Under the terms of the agreement, FBA sellers will be required to collect sales tax by December 1, 2017.

Other Taxes Included in the Voluntary Disclosure Agreement

As noted above, the presence of inventory in a state subjects the seller of that inventory to personal, corporate, franchise, and gross receipts taxes, in addition to the duty to collect sales/use tax.  The MTC has indicated that many of the participating states are also waiving the lookback period for these other taxes.

What Happens if FBA Sellers Do Not Enter into a Voluntary Disclosure Agreement?

FBA sellers who have nexus in a state would be subject to discovery by that state and potentially have liability for tax, penalty, and interest for an indefinite prior period. Presumably the voluntary disclosure program extends to other marketplace providers besides Amazon, but Amazon was specifically named in the MTC’s announcement.

For more information, please contact FGMK Tax Partner Matt Fuller: (E) mfuller@fgmk.com (D) 847.444.8491.

 

About FGMK

FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.

Please visit our website for our complete list of services.

 

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