MTC nexus program offers limited-time amnesty for Amazon retailers
Does inventory held in FBA distribution channel create nexus?
INSIGHT ARTICLE |
Many retailers have historically taken advantage of leveraging Amazon’s Fulfillment by Amazon (FBA) sales distribution channel. In doing so, retailers have connected with a larger population of customer, while seemingly mitigating their sales and use tax compliance burden. However, over the years many states have learned about the specificity of the FBA distribution channel, and are now arguing the inventory that Amazon maintains on behalf of the retailer creates nexus in certain jurisdictions, regardless of materiality.
The presence of inventory in a state will, in most cases, establish nexus for a retailer. By establishing nexus, a company creates a collection and reporting requirement for certain taxes, including sales and use tax. Many retailers that have leveraged the FBA model for e-commerce sales have been assessed sales and use tax on historical sales as a result of inventory being held by Amazon on behalf of the retailer. The burden of uncollected sales and use tax on sales to customers is an expense that many retailers will never recover.
The Multistate Tax Commission (MTC) Nexus Program is offering a limited-time amnesty program for retailers seeking relief from any past due sales and use tax, including interest and penalties, and if applicable, income and franchise tax liability, including interest and penalties, in connection with its online retail sales activity in the state, excluding sales and use tax collected but not remitted. As a result of entering into the program, which is offered between Aug. 17, 2017 and Oct. 17, 2017, the taxpayer agrees to register as a seller or retailer with the state no later than Dec. 1, 2017. In doing so, the taxpayer agrees to timely collect, report and remit sales and use tax and file returns on all taxable retail sales to customers in the state.
There are certain criteria that have been defined by the MTC to establish eligibility into the program, including, but not limited to the following:
- At this time only the following states have adopted the terms of the amnesty program (along with stipulations) however it is expected that more may join soon: Alabama, Arkansas, Colorado, Connecticut, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Texas, Utah, Vermont, and Wisconsin.
- The taxpayer has not previously been registered or contacted by the jurisdiction.
- The taxpayer does in fact use the FBA platform (or similar program) for distribution of product to a state that otherwise the company has no physical presence.
- The taxpayer has timely filed for disclosure with the MTC and in accordance with the program submitted all requisite documentation and historical information.
This program provides a unique opportunity for retailers to absolve themselves of historical exposure (including taxes, interest and penalties) resulting from engaging in e-commerce sales. Keep in mind, by taking advantage of this program, you will have the burden of prospective compliance, however, it’s unlikely the participating states will offer any relief from interest or penalties for retailers that do not seek to take advantage of this limited time offer.
If you sell your product through Amazon, or another similar distribution channel, we encourage you to contact a tax professional. The timing is limited to take advantage of this tax amnesty program.
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