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Amazon FBA Sales Tax Forgiveness: A Narrow Window to Dodge Back Taxes

Published at Aug 31, 2017.

Amazon FBA sellers have to deal with one of the most complex online sales tax situations known: they may need to collect sales tax in every state where Amazon operates, and even in some specific cities. Sellers who haven’t known about these laws may have built up back taxes, fines, interest and penalties that a state could spring on them at any moment. But the Multistate Tax Commission’s Online Marketplace Seller Voluntary Disclosure Initiative offers a brief window for Amazon FBA sales tax forgiveness.

How Amazon FBA Sales Tax Forgiveness Works

Businessperson Holding Up Sorry Sign

The voluntary disclosure initiative gives sellers a chance to go to participating states and say, “I realize I messed up here. I’m ready to start collecting and remitting sales tax. Can we just forget this ever happened?”

Many of the states participating will give you a totally clean slate if you go through this program and register to collect sales tax properly. If you haven’t been collecting taxes in one of these states, this is a huge opportunity.

Yet you can’t always get away scot-free. Some states, such as Wisconsin, will simply put a limit on how far back they’ll hold you accountable and forgive years prior to a certain point. Other states, like California, aren’t participating at all.

How Long Do I Have to Apply?

States began accepting applications on August 17, 2017, and will continue accepting them until October 17. If you miss that deadline the opportunity may disappear for good.

Note that with the exception of North Carolina, you can’t apply for amnesty if the state has already reached out to you about the possibility that you owe sales tax.

Which States Might Give Me Complete FBA Sales Tax Forgiveness?

Torn-Up Paper

According to TaxJar, the following states offering amnesty have a permanent Amazon nexus in them or will shortly. Any FBA seller will therefore likely be responsible for sales tax on sales to residents of these states. That should make them your top priorities.

  • Colorado
  • Connecticut
  • D.C. (maybe—they might also just reduce the lookback period, i.e. how far back they’ll hold you responsible)
  • Florida
  • Kansas
  • Kentucky
  • New Jersey
  • Tennessee
  • Texas
  • Utah

The following states are also participating but are not listed as having a permanent Amazon nexus. However, Amazon states FBA sellers may be responsible for sales tax in every state that charges it.

  • Alabama
  • Arkansas
  • Idaho
  • Iowa
  • Louisiana
  • Missouri
  • Nebraska
  • North Carolina
  • Oklahoma
  • South Dakota
  • Vermont

Which States Are Offering Limited Amnesty?

  • Massachusetts
  • Minnesota
  • Wisconsin

All three of these states are listed as having Amazon nexuses, so even partial forgiveness may be worth taking advantage of.

Which Amazon Nexus States with Sales Tax Aren’t Offering Amnesty?

Police Officer

This list compiled with the help of TaxJar’s list of Amazon warehouse locations.

  • Arizona
  • California
  • Georgia
  • Illinois
  • Indiana
  • Maryland
  • Nevada
  • Ohio
  • Pennsylvania
  • South Carolina
  • Virginia
  • Washington

What Could Go Wrong If I Apply?

According to Avalara, the biggest risk is that states that aren’t participating in the forgiveness program could ask participating states if you registered, then use that info to hunt you down and present a bill for all the back taxes you owe. That could bring a world of hurt on your business.

On the other hand, if one state cared enough to ask another if you’d registered, they’d probably also care enough to check your sales record and slap you with back taxes anyway. Applying for amnesty will at least put you totally in the clear with some states.

Also keep in mind that once you’ve registered to collect sales tax, these states really will be breathing down your neck. You’ll have to be on your best behavior from that point forward.

Should I Apply for Amazon FBA Sales Tax Forgiveness?

Businessman Making a Decision

This is a big business decision. If you might owe back taxes in participating states, I highly recommend you talk to a tax professional. They’ll be able to walk you through the consequences of deciding for or against participating.

In my mind, though, it comes down to two things: you could have your slip-ups in several states forgiven and maybe have to pay back taxes in some others now, or you could choose to do nothing, hope no one ever catches on, and live in fear that someday the hammer will fall. Personally, I’d rather risk getting punched a couple times today than having the absolute snot kicked out of me tomorrow. Forgiveness is a once-in-a-lifetime opportunity that I would not miss.

Visit the MTC's Online Marketplace Seller Voluntary Disclosure Initiative page to learn more about participating.

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