The Multistate Tax Commission (MTC) is moving quickly to implement a multistate amnesty program through its current National Nexus Program (NNP) for sellers making sales through marketplaces. The new MTC marketplace seller amnesty program is limited to remote sellers (3P sellers) that have nexus with a state solely as the result of: (1) having inventory located in a fulfillment center or warehouse in that state operated by a marketplace provider; or (2) other nexus-creating activities of a marketplace provider in the state. Other qualifications include: (1) no prior contact/registration with the state; (2) timely application during the period of August 17, 2017 through October 17, 2017; and (3) registration with the state to begin collecting sales and use tax by no later than December 1, 2017, and income/franchise tax (to the extent applicable) starting with the 2017 tax year.
The baseline guarantee is prospective-only (beginning no later than Dec. 1, 2017) tax liability for sales and use and income/franchise tax, including waiver of penalties and interest. The program also attempts to ensure confidentiality of the 3P seller’s participation by prohibiting the states and MTC from honoring blanket requests from other jurisdictions for the identity of taxpayers filing returns. Note, however, that the confidentiality provision would still allow for disclosure of the content of the agreement in response to: (1) an inter-government exchange of information agreement in which the entity provides the taxpayer’s name and taxpayer identification number; (2) a statutory requirement; or (3) a lawful order.
Logistically, applying for this amnesty opportunity will be very similar to the NNP Voluntary Disclosure Application process, and the MTC is even using the same online and PDF application forms (that require a separate application for each state). Note that this application also requests that the applicant provide a good-faith estimate of back tax liability to the state for the prior four (4) years. The application process is anonymous and 3P sellers will not be required to disclose their identity to any state until they register with the state and the voluntary disclosure agreement is executed. Applicants will have the opportunity to pick and choose which participating states they would like to enter into a voluntary disclosure agreement (VDA) with and the MTC will process the applications.
It is our understanding that nearly all of the 18 participating states that have committed so far will offer the baseline terms; however, there are a few states that have elected to deviate from the standard program terms. In particular, Colorado will not waive back tax liability for income tax beyond its normal four-year lookback period. Wisconsin will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax. Nebraska “will consider waiving back tax liability for uncollected sales/use tax and income tax,” which seems to imply that interest and penalties will not be waived. Based on these, and other concerns raised on the call, the MTC has allowed the flexibility to adjust the criteria based on state-specific needs/desires. Therefore, to the extent additional states sign-on to this limited time amnesty opportunity, the same terms and qualifications may not apply. Specifically, participating states have the ability to make elections regarding: (1) whether a limited (1–2 year) lookback period will apply, or the agreement will be prospective-only; (2) whether the agreement will apply to income/franchise taxes too or just sales and use tax; and (3) whether applicants must meet certain additional minimum thresholds to qualify, such as $10,000 in sales into the state during the prior year and/or $500 in back tax liability.
The MTC has received a firm commitment from the following 18 states: (1) Alabama; (2) Arkansas; (3) Colorado [sales tax only]; (4) Connecticut; (5) Florida; (6) Idaho; (7) Iowa; (8) Kansas; (9) Kentucky; (10) Louisiana; (11) Nebraska; (12) New Jersey; (13) Oklahoma; (14) South Dakota; (15) Texas; (16) Utah; (17) Vermont; and (18) Wisconsin [with a lookback to 2015]. The following four states have expressed interest, but have not committed to participate yet (and may not): (1) Michigan; (2) North Carolina; (3) North Dakota; and (4) Tennessee. Indiana and Pennsylvania wanted to participate, but the committee voted against their participation because they are not NNP member states.
Practice Note
Remote sellers using a marketplace provider should carefully review the terms of the final amnesty program before committing to it. In particular, marketplace sellers should beware of deviations from the baseline terms in states like Colorado and Wisconsin (and potentially others that sign-on later) that erode (at least in part) the underlying intent of the amnesty and/or do not provide meaningful relief. The MTC program is moving very quickly, so 3P sellers should carefully monitor the MTC website for developments in the coming weeks, and are encouraged to consult with their trusted tax advisor before signing up to participate in a state.
