August 7, 2017

Amazon FBA Sellers Are Offered Special Voluntary Disclosure Agreements by the Multistate Tax Commission until October 17, 2017

By John Bonk, Senior Manager, Tax & Business Services

Amazon FBA Sellers Are Offered Special Voluntary Disclosure Agreements by the Multistate Tax Commission until October 17, 2017

Amazon FBA (fulfilled by Amazon) is commonly used by companies that sell via the ecommerce giant. As part of the arrangement, companies send their inventory to Amazon, but maintain access to the inventory via their Amazon portals.

Amazon distributes the inventory across its warehouses, located in numerous U.S. states. Generally, inventory is spread across Amazon’s storage facilities in order to facilitate local Amazon Prime shipping requirements. However, since the sellers still own the inventory, Amazon’s storage of the inventory creates state nexus issues for participating companies in the state(s) where the inventory is held. Consequently, these companies may be subject to numerous unforeseen state taxes, including, but not limited to a state’s Sales Tax, Income Tax, Franchise Tax, and Gross Receipts Taxes.

Recently, however, the Multistate Tax Commission (“MTC”) proposed a voluntary disclosure agreement (“VDA”) to address the unforeseen pitfall(s) now faced by a number of companies enrolled in Amazon FBA. Under a normal VDA, a taxpayer pays the last three to four years (the “lookback period”) of taxes owed plus interest, and then agrees to timely file the applicable state returns going forward, with years prior to the lookback period being closed under statute. The special VDA being offered is unique in that many states have agreed to no lookback period. This completely absolves taxpayers of prior year sales taxes owed and requires only that taxpayers pay sales taxes going forward while additionally closing the statute on past taxes owed.

At present, application to the special VDA will be available only for a limited time, from August 17 through October 17, 2017. States currently committed to participating in the program include Alabama, Arkansas, Colorado, Connecticut, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, Texas, Utah and Vermont. Other states will announce before the August 17 start date whether they, too, will participate. What is currently unclear, however, is how many of the participating states will allow the special VDA to apply to taxes other than sales tax. In the forthcoming weeks, additional guidance should be made available with regards to the exact taxes covered by the special VDA.

It is highly recommended that companies with substantial exposure under the Amazon FBA arrangement, who currently do not file tax returns in the states in which Amazon stores their inventory, seriously consider the MTC’s special VDA.

Once a company has entered into the special VDA, further discussion about planning for the most efficient way to pay taxes in the future should be considered,—as entering into the special VDA will result in an expanded state tax footprint. It is important to mention that the opportunity to enter into a VDA like this may never surface again, and that it is only a matter of time before states are able to identify Amazon FBA partners on their own. If a state audits a taxpayer with regard to its Amazon FBA nexus, the lookback period will be substantial, and the taxes owed will include interest and penalties.

Please contact your Marcum tax professional to address any questions regarding this notice or any other tax matter.