Should I collect online sales tax?
Should I collect online sales tax?
It's always best to discuss what’s right for you with your tax advisor. If you don’t have a one, consider one of these.
For U.S. tax needs:
Contact: Rachel Le Mieux, firstname.lastname@example.org
Contact: Judy Vorndran, email@example.com
For international tax needs:
Contact: Sylvia Dion, firstname.lastname@example.org
This is a question for you and your tax advisor to tackle. If you own inventory that’s housed in a third-party fulfillment center in a state where you do not currently collect tax, you may be out of compliance. Being out of compliance can represent a significant monetary risk.
An audit could leave you with a hefty bill for back taxes, plus interest on those back taxes and penalties for being out of compliance. The tax amnesty program provided an opportunity for you to erase your back tax liability and start complying with state tax laws.
You have a tax obligation, or nexus, in a state when you have a physical presence there. This extends beyond having an office or employees in the state. If you have inventory in a state, even in a warehouse owned by a third party, you have nexus.
Sometimes it’s hard to track the exact location of your inventory. Amazon, for example, moves FBA inventory among its warehouses in different states, often without notifying sellers first. Once that inventory hits the ground in a state where you aren’t collecting tax but you are making sales, you’re out of compliance.
The application period closed on Nov. 1, 2017.
The amnesty program had a lot of people asking “what’s the catch?” But there wasn’t necessarily one. Participating states were looking to bring unidentified sellers into compliance so they could broaden their tax revenue streams.
You have to collect and file applicable taxes in the states where you were granted amnesty, and this could increase your workload significantly, depending on how you choose to manage your compliance. Manual compliance, for example, takes much more time to manage than automated.
Participating states will not send out blanket statements about sellers that step forward during the program, though they could be required to answer direct questions from another state about a particular seller.
You may luck out and continue flying under the radar of states where you’re out of compliance. However, now that the tax amnesty program has concluded, states are likely to increase efforts to uncover noncompliant sellers. If your luck runs out, you’ll be audited, and that will cost you.
States are facing serious revenue shortages, and their hunger for more tax revenue is only increasing. If they can’t get it from out-of-state sellers, they’ll try to get it from their customers. Take Colorado and Washington. They’re requiring out-of-state sellers to share information about their sales into the state and will then go after their customers to collect use tax.
One way or another, states are determined to get the tax revenue they're due; and there’s an overwhelming trend toward bringing more businesses into compliance.
You can keep trying to stay off states’ radars and keep those fingers crossed you won’t be audited. Or you can participate in a voluntary disclosure program directly with a state, if possible. A voluntary disclosure program is akin to an amnesty program in that it may waive some of the penalties and interest and may also offer a reduced look-back period.
The MTC amnesty program concluded on Nov. 1, 2017. If you're interested in learning about other options to increase compliance, Avalara recommends working with a tax advisor, like one of the experts listed above, on any voluntary disclosure process.