Alaska offers voluntary disclosure for unregistered remote sellers

On June 21, 2018, the Supreme Court of the United States ruled that physical presence in a state isn’t requisite for sales tax collection (South Dakota v. Wayfair, Inc.). Prior to the Wayfair decision, states could only require a business to collect sales tax if the business had a physical connection to the state.

Physical presence in a state still creates a sales tax obligation, but Wayfair freed states to tax remote sales as well. In the wake of the ruling, all states with a general sales tax adopted economic nexus laws with thresholds that base a remote sales tax obligation on a remote seller’s sales activity in a state, such as $100,000 in sales or 200 separate transactions in the current or previous year.

The state of Alaska didn’t adopt economic nexus because there’s no Alaska sales tax, but the Alaska Municipal League (AML) began to research what it would take to tax online sales in Alaska. It knew it needed to minimize the burden of sales tax compliance for remote sellers, because requiring businesses to register with and remit to 100+/- jurisdictions in the state would be untenable.

Ultimately, the AML decided “a single-level, statewide administration of online sales tax collection and remittance” was needed to reduce the compliance burden for remote sellers. And so the Alaska Remote Seller Sales Tax Commission (ARSSTC) was born.

The ARSSTC created a uniform administrative remote seller sales tax code that sets the rules for remote sales tax collections; local jurisdictions must adopt the code to participate in the ARSSTC. The code applies to remote sellers and marketplace facilitators only, not to businesses with a physical presence in a jurisdiction.

Among other things, the uniform code:

• Establishes the requirement for a single sales tax filing portal and tax map lookup tool

• Provides definitions for applicable terminology

• Sets the economic nexus threshold for businesses to register and collect sales tax for sales throughout Alaska ($100,000 or 200 transactions)

By April 2020, about a dozen jurisdictions in Alaska were taxing online sales — requiring businesses with economic nexus to register and remit through the ARSSTC portal. 

Close to 50 cities and boroughs in Alaska now tax remote sales and/or alcoholic beverages shipped to consumers in the jurisdiction. Another three jurisdictions have joined the ARSSTC and are working to adopt the uniform code. See which jurisdictions are in the ARSSTC.

Once a remote seller or marketplace facilitator with no physical presence in the state meets Alaska’s economic nexus threshold of $100,000 in gross sales or 200 transactions into Alaska in the current or previous calendar year, it must register with the ARSSTC and begin collecting sales tax on shipments to member jurisdictions. 

In-state businesses should report and remit sales tax to local governments in the jurisdictions where they have a physical presence. However, if an in-state business delivers or ships goods into a jurisdiction where it doesn’t have a presence, it should register with and remit remote sales tax through the ARSSTC. This requires reporting the two revenue streams separately.

There were 2,625 remote sellers registered with the ARSSTC at the end of Q3 2022, but there are still unregistered remote businesses that have an obligation to collect. As of January 1, 2023, the ARSSTC is actively looking for them.

To encourage unregistered remote sellers to register and comply with their municipal sales tax requirements, the ARSSTC has created a Voluntary Disclosure Program. It’s open to remote sellers that have met Alaska’s economic nexus threshold but were not registered with the ARSSTC as of January 1, 2023.

Numerous states offer a voluntary disclosure program, also called a voluntary disclosure agreement (VDA), to encourage nonregistered businesses to register and pay the taxes they owe. A VDA typically limits the amount of time a tax authority can assess overdue taxes (the look-back period) on a business. For participating businesses, VDAs also usually reduce or even waive late filing or late payment penalties.

It can be extremely beneficial to participate in a VDA, especially for businesses whose exposure in the state is high. That said, it’s important to consult with a tax advisor before moving forward with a VDA. Every state’s VDA is unique. 

• A limited look-back period of 36 months from the date of application (the look-back period does not include periods prior to January 1, 2023)
• Waived late payment penalties (100%)
• Waived late filing fees (100%)

Caveats

• Interest is not subject to waiver under the Voluntary Disclosure Program
• The look-back period does not apply to sales taxes that were collected but not remitted; such taxes are considered delinquent and will be subject to late payment penalties, late filing fees, and interest

To qualify for the ARSSTC Voluntary Disclosure Program, a remote seller must have:

• Never registered with or reported taxes to the ARSSTC
• Never been contacted by the ARSSTC for enforcement purposes (e.g., regarding registration or reporting requirements, compliance contacts, or an audit)
• Not engaged in tax evasion or misrepresented tax liabilities
• Not collected but failed to remit the back taxes in question

The ARSSTC encourages businesses that determine they’re not eligible for voluntary disclosure to “proceed with registering with the ARSSTC.” 

If you’ve determined you’re likely eligible for Alaska’s Voluntary Disclosure Program, you’ll need to complete the Voluntary Disclosure Program application and mail it to arsstc@akml.org. Again, businesses are advised to consult with a tax professional before submitting an application.

What happens next depends on whether the ARSSTC accepts you into the program. Eligible businesses will be sent a voluntary disclosure agreement, which must be signed and returned to the ARSSTC within 30 calendar days of the original application date. It happens fast.

If your application isn’t approved, the ARSSTC will instruct you on how to proceed. Read more about the Alaska VDA program.

Learn how a voluntary disclosure agreement can help reduce your sales tax liabilities in this on-demand webinar.