By Alex Koral, Sovos Industry Outreach Adviser
This week begins the 2-month open application period for Sales Tax Amnesty. During this window, ecommerce sellers can apply to have more than 20 states waive back taxes, penalties and interest. In a live webinar earlier this week, James Thomson of the Prosper Show joined me to answer questions from sellers about the amnesty program. Here is a summary of what we discussed during the webinar.
Q: Is this sales tax amnesty program only designed for Amazon sellers?
A: The amnesty program is designed for all remote sellers. The key criteria are that sellers:
- store inventory in states other than the one they are based out of,
- are not currently collecting and remitting sales tax on sales they make to those states, and
- have not been contacted by those states regarding their tax liability.
Q: If I run my own ecommerce site, can I participate? What if I sell from outside of the U.S.?
A: If you are selling on your own website, or selling from outside of the country, you are welcome to apply for this program. It doesn’t matter where the sales are coming from, but on where the sales are going to.
Q: As an Amazon FBA seller, should I apply to states which currently are not FBA nexus sites, in anticipation for future FBA warehouse expansion? Or can that be handled in the future?
A: This ultimately is a business decision. The amnesty program is designed for sellers to apply to states where they do currently have inventory nexus, whether through FBA or some other storage service. If you are risk averse, it may be worthwhile to apply everywhere you can, to make sure that you will enjoy as many benefits that this program may provide.
However, there also could be perfectly valid reasons to wait for future FBA expansion, and only apply to those states when you actually have nexus. The primary question to answer is where do you currently owe back taxes and would benefit from having those taxes, interests, and penalties waived.
Q: What happens if you settle your tax liability, then stop using FBA – does your nexus in a state expire?<br /> A: It is possible to remove your nexus in a state by removing the condition that causes that nexus (for instance by leaving the FBA program). However, once you have registered with a state to be a tax collector and remitter (which is a condition of this amnesty program), the state will continue to expect tax returns and payments going forward.
It is possible to petition a state to remove you from their list of registered tax collectors. However, this process can be very difficult as you have to convince the state that there are no reasons at all why the state should expect tax payments from you. If you have a history of filing reports and remitting taxes, states will likely be skeptical when you say you don’t need to anymore, and so may make the petition process more difficult.
Q: If I’m just starting an ecommerce business and have not been making sales yet, should I participate in the amnesty program?
A: This program is meant to provide relief to business who owe back taxes. If you are just starting your business it is unlikely that you owe back taxes, and so you don’t really need this program. The task for you is to register with the states in which you are making sales and have nexus as a new business. This way you can get ahead of your tax liability and avoid needing to rely on an amnesty program like this one.
Q: What states are participating in this amnesty? Where can I find up to date information?
A: Currently there are over 20 states that have agreed to participate in this program, but a couple more states have signalled they may decide to join before August 17. Up to date information on the program can be found on the Taxify Sales Tax Amnesty page.
Q: If a seller doesn’t meet the threshold or bright line test for needing to file on income tax, are they agreeing to file income tax regardless of whether they actually need to in this program?
A: In a word, no. A seller will only need to apply for whichever taxes they meet the nexus requirements for, which are different for sales tax and income tax. Sales tax nexus is generally established with a physical presence, such as storing inventory in a state.
Income tax nexus, however, is largely based on meeting certain economic threshold factors, such as generating a certain amount of revenue in a state in a year. If you do not meet these thresholds, you will not need to register for income tax, even if you do have sales tax nexus. It is therefore important to carefully consider what tax liability you may have in each state before you fill out your amnesty application.
Consulting with an accountant or other tax advisor is highly recommended to ensure that you are applying for as much of the amnesty that you can enjoy, without also applying for too much.
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