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UPDATED: The Amazon FBA Sales Tax Amnesty: What You Need to Know
October 12, 2017
Important Update: The amnesty application deadline is now November 1, 2017
Updated September 29, 2017 to add Rhode Island as a participating amnesty state
Updated August 17 to add 3 new participating states: Massachusetts, Minnesota and North Carolina
We hosted a webinar with sales tax expert Mike Fleming of Peisner Johnson to help sellers determine if the amnesty is a good idea for their businesses. You can view the entire webinar here:
Amazon FBA sellers have sales tax nexus in states where they store inventory in Amazon Fulfillment Centers. Recently, the Multistate Tax Commission has worked with a number of states where Amazon fulfillment centers are located to help FBA sellers get sales tax compliant without facing fines and penalties.
Read on to find out what you need to know about this Amazon FBA sales tax amnesty.
What’s is the Amazon FBA Sales Tax Amnesty?
According to their website, “the Multistate Tax Commission (MTC) is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws.”
In this case, 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 collecting and remit past due sales tax.
This is seen as a win/win for the states and for Amazon FBA sellers who may not have realized their sales tax liability, or who did realize they have sales tax liability but were worried about becoming compliant due to the fact that they would owe past due sales tax, interest, and other penalties.
With this Amnesty, after a successful application, FBA sellers can simply register for a sales tax permit and begin collecting sales tax. States will not “look back” at previous sales tax liability.
Which states are participating in the Amazon FBA Sales Tax Amnesty?
Currently, the following states are participating in the Amnesty:
- Colorado (upcoming Amazon state; Colorado will waive sales and use tax, but will not waive income tax if you also owe back income tax. Read more here.)
- Connecticut (Amazon state)
- Florida (Amazon state)
- Kansas (Amazon state)
- Kentucky (Amazon state)
- Massachusetts (Amazon state) (with provisions; read more here)
- Minnesota (Amazon state) (with provisions; read more here)
- Nebraska (with provisions; read more here)
- New Jersey (Amazon state)
- North Carolina
- Rhode Island
- South Dakota (with provisions; read more here)
- Texas (Amazon state)
- Tennessee (Amazon state) (with provisions; read more here)
- Utah (upcoming Amazon state)
- Washington DC (may have a look back period, read more here.)
- Wisconsin (Amazon state, with provisions including a limited look-back period. Read more here.)
If you apply for amnesty, and then register for a sales tax permit and become sales tax compliant in one of the above states during the amnesty period, you will not be subject to a sales tax liability “look back,” or any associated fine and penalties. (Though some states have exceptions. Be sure to visit the MTC site and read the note for each state with “read more here” next to it!)
You’ll notice that aggressive sales tax compliance enforcement states like California and Washington are not currently participating in this offer of amnesty. The MTC is hoping to persuade more states with Amazon Fulfillment Centers to join in the Amnesty.
When will the Amazon FBA Sales Tax Amnesty take place?
The amnesty is taking place now! It started August 17, 2017 and ends November 1, 2017. This means online sellers who wish to take advantage of the amnesty must apply by November 1st.
Should I participate in the Amazon FBA Sales Tax Amnesty?
As with every business decision, this is up to you. If you are concerned that past due sales tax will come back and harm your business, then the amnesty period is perhaps the best possible time to get sales tax compliant with minimal consequences. The fact that these states are participating in an amnesty program demonstrates that they are aware of non-compliant Amazon sellers in their midst.
On the other hand, perhaps you only make a handful of sales per year in a state like Kansas or South Carolina. You may decide that the cost of complying with sales tax in one of those states is prohibitive compared to any fines or penalties you’d be forced to pay should the states catch you. This is your business and your decision. (To help in this decision, you can read more about “When to Register for a Sales Tax Permit” here.)
What do the experts say? According to Michael Fleming of Peisner Johnson: “I think this is a great opportunity for FBA sellers, especially in a state like Texas. Texas is generally in most sellers’ top three sales states. This program will now allow sellers to register going forward without having to worry about past exposure in the participating states. It is not all great news though as not all states have chosen to participate. With the program shining a new light on the topic, we may see increased enforcement efforts from states not participating, especially in California and Washington. So while I think everyone should participate in this program, sellers must have a strategy for dealing with the balance of the states.”
Are international sellers eligible for the amnesty?
In a word, yes. Any seller, no matter where you are based, is eligible to participate in the sales tax amnesty if you have built up past sales tax liability.
CAUTIONS about the Amnesty
Before you elect to participate, there are some important thing to think about:
- You are not eligible to participate in a state if a state has previously reached out to you about sales tax. If you’ve received a nexus questionnaire or other communication from the state, this means you are on their radar and not eligible to participate in the amnesty.
- You are not eligible to participate if you have already registered to collect sales tax in a state.
- You will be required to provide a good faith estimate of your back taxes owed to each state in which you wish to participate over the past 4 years. Be careful here! While this is an “estimate,” Fleming warns that you should provide the most accurate estimate possible to avoid complications. (Don’t worry! TaxJar can help with this.)
If you have any questions at all about participating in the amnesty, it’s better to be safe than sorry. We recommend speaking with a sales tax expert like the folks at Peisner Johnson before you apply. (Like choices? Here’s a list of other sales tax firms.)
I want to participate. How do I know in which states I should register?
We recommend you take three steps to find out your sales tax liability:
Step 1: Determine Where Your Business Activity Gives You Nexus
Nexus is just a fancy way to say “significant connection” to a state. You can read more about the factors that create sales tax nexus for your business here.
To find out where Amazon FBA gives you nexus, if you are a current TaxJar customer, you can login and look for the brown “Amazon” badges on your TaxJar State Settings page. We’ll show you a brown Amazon badge next to each state from where we see your Amazon FBA items ship to customers.
Step 2: Connect and Share Your Transaction Data with TaxJar
To determine how much back taxes you owe (and help you decided if you want to take advantage of the amnesty) connect your online shopping carts and marketplaces with TaxJar. If you make a brand new TaxJar account today, we will pull in all of your transaction data back to January 1, 2017. We can also provide you with previous years’ data for an extra fee.
If you have your transaction data in .csv format, you can also upload a .csv to TaxJar. From there, we will slice and dice your data through our sales tax engine and determine your sales tax liability. From there…
Step 3: Determine Your Potential Sales Tax Liability in a State
To determine your potential sales tax liability in a state, once all your sales data is shared with TaxJar, you can view each state where you are not collecting sales tax on your TaxJar dashboard. We’ll show you how much sales tax you should have collected in each of these states had you been collecting sales tax. These numbers help you make an informed decision about whether or not you should participate in the sales tax amnesty.
In this example, the seller should have collected $1,097.34 in sales tax in Florida in the previous month and $317.43 in Georgia in the previous month. To see other time periods, you can click the blue wrench icon and change the time period to quarterly or annually.
Further, do you have other transactions not on Amazon? Once you have nexus in a state, you are required to collect sales tax on purchases by all buyers in that state. TaxJar makes that easy, too. You can also connect your other online shopping carts and marketplaces to TaxJar to help determine your business’s total sales tax liability.
Follow these instructions to link your online shopping cart or marketplace to TaxJar.
How do I participate?
To participate, you should fill out “Multistate Voluntary Disclosure” paperwork from the Multistate Tax Commission. They will then work with the states to help you take part in the amnesty. Note: Only fill out the information they ask for. They will initially work with the state on your behalf as an anonymous seller.
DO NOT register with each individual state if you with to participate in the amnesty. The only way to participate in the amnesty to proceed through the Multistate Tax Commission.
What happens if I don’t participate in the Amazon FBA Sales Tax Amnesty?
This is the million dollar question (maybe literally) and one I’ve been trying to get an answer to from the Multistate Tax Commission and various other sources. I imagine that in the worst case scenario the above states will request sales tax nexus data from Amazon and then begin sending out request for information, or even begin with the audit process with some businesses. Sales tax expert Mike Fleming from Peisner Johnson confirmed that he expects most states to ramp up their sales tax collection efforts after the amnesty ends.
In the best case scenario, some states may not have the resources to pursue Amazon FBA sellers (at least for the time being), so they may be content with the new Amazon FBA sellers who register to collect and remit sales tax under this amnesty.
Where can I find out more?
- The MTC’s official page about the 2017 Marketplace Sellers Sales Tax Amnesty
- 2017 MTC Sales Tax Amnesty Program notice from the Prosper Show
- Watch our webinar & FAQ on the Sales Tax Amnesty with sales tax expert Mike Fleming of Peisner Johnson
This is an ongoing story and we’ll add new details here as the Multistate Tax Commission releases new info.