One of the more confusing aspects of selling on Amazon FBA is the fact that storing inventory in an Amazon fulfillment center creates sales tax nexus. Sales tax nexus is just a fancy way of saying a significant connection to a state, and if you, as an FBA seller, have nexus in a state then you are required to collect sales tax from buyers in that state.
Unfortunately, neither states nor Amazon itself does a great job of educating sellers about their sales tax liability. As a result, many online sellers are confused and worried about their sales tax liability. And that’s where the upcoming sales tax amnesty can help.
What is the sales tax amnesty and how does it affect my business?
If you have not been collecting sales tax in your nexus states, you can apply for amnesty in 15 states (and counting) over the next two months under a program put together by the Multistate Tax Commission (MTC).
In this case, “amnesty” means that participating states agree that they will not “look back” at your past sales tax liability and ask you to pay any back sales tax that you may owe. This is in exchange for you agreeing to collect and remit sales tax going forward.
The amnesty period takes place from August 17-October 17, 2017. The participating states are:
- New Jersey
The MTC is working with six more states that may possibly join the amnesty before the start date on August 17.
If you wish to participate in the amnesty, you can fill out an application with the MTC starting on August 17. From there, the MTC will work with the state (or states) that you wish to work with to provide you with full amnesty. The application will be available when the amnesty starts.
How do I know if I should participate in the 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.
The decision about whether to participate in this amnesty is up to you. We recommend you take the following steps to determine if the amnesty is right for your business:
- Determine where you have sales tax nexus – You have sales tax nexus in states where Amazon stores your inventory for sale. You can find out where your inventory is stored from within Seller Central by viewing your Inventory Event Detail report. If you use TaxJar, you can see where you have sales tax nexus by viewing the brown Amazon badges next to each state.
- Determine your sales tax liability in each state – If you have nexus in a state, but never make sales there, then it may not be feasible for you to register for a sales tax permit there. However, if you owe a significant amount of money to a state, and your business could be damaged if that state found you and audited you for past sales tax due, then the amnesty is a good time to “get off the hook” free. You can read more about when is the right time to register for a sales tax permit here.
How did this amnesty come about?
After his presentation at the Prosper Show earlier this year, Richard Cram of the MTC spoke with many Amazon sellers who had no idea that they may be on the hook to pay past due sales tax. This posed a problem for both sellers and states. Sellers – who had been unaware of their sales tax liability – were worried that if they came out of the dark now that fines, penalties, and interest would hurt their business. Or, worse, put them out of business.
States, on the other hand, were owed sales tax that they weren’t receiving. Since states use sales tax to pay for budget items like schools, roads, and fire trucks, they are very interested in ensuring that all liable merchants collect sales tax. Seeing this two-sided problem, Cram and the Multistate Tax Commission worked with this group of states to provide a sales tax amnesty for online sellers.