The Multistate Tax Commission (MTC) National Nexus Program is offering a voluntary disclosure initiative (VDI) from August 17 through October 17, 2017 for sellers that make sales through online marketplaces (online marketplace sellers). Participating states will consider VDI applications and, in exchange for executing a voluntary disclosure agreement (VDA), most states generally will waive sales/use and income/franchise tax liabilities for online marketplace sellers, including penalties and interest, for prior tax periods without regard to any lookback period.

Both Wisconsin and Colorado are deviating from the general waiver. Wisconsin is requiring payment of back sales/use tax liability and interest beginning January 1, 2015, and back income/franchise tax liability for the 2015 and 2016 tax years. Further, Wisconsin will limit the lookback period to prior years in which the marketplace seller had nexus. Colorado is providing relief from back tax liability for sales/use tax purposes, but for income/franchise tax purposes is requiring payment of back tax liability and interest for a four-year lookback period.

In addition to Wisconsin and Colorado, as of the date of this Alert, other states participating in the VCI include: Alabama, Arkansas, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Tennessee, Texas, Utah and Vermont.

Eligibility requirements

A marketplace provider or facilitator is defined as a person who facilitates a retail sale by an online marketplace seller by: (1) listing or advertising for sale by the online marketplace seller on a website tangible personal property, services, or digital goods that are subject to sales/use tax; (2) either directly or indirectly through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the online marketplace seller; and (3) providing fulfillment services to the online marketplace seller. For online marketplace sellers to participate in the program, all of the following criteria must be met:

— The online marketplace seller has not: (1) registered as a seller or retailer; and (2) filed tax returns with, paid tax to, or had prior contact with the state regarding liability or potential liability for sales/use or income/franchise taxes.

— The online marketplace seller uses a marketplace provider/facilitator to facilitate its retail sales into the state, and the online marketplace seller does not have physical presence nexus in the state, except for (1) its inventory stored in-state in a third-party fulfillment center, or (2) the marketplace provider/facilitator's engagement in other nexus-creating activities in the state on the online marketplace seller's behalf.

— The online marketplace seller timely applies electronically for the VDI relief to the state through the MTC Multistate Voluntary Disclosure Program.

— Except for sales/use tax that was collected but not remitted to the state, the online marketplace seller requests relief from any past due sales/use tax, including interest and penalties (and income/franchise tax including interest and penalties, if applicable) connected with its online retail sales activity in the state. In addition, the online marketplace seller must agree to register as a retailer with the state and timely collect, report, and remit sales and use tax and file returns on all taxable retail sales to customers in the state prospectively as of the effective date (no later than December 1, 2017) of the VDA. The online marketplace seller also must agree to timely file income/franchise tax reports, if applicable, starting with the tax year including the effective date (not later than December 1, 2017) of the VDA.

Applications should be submitted through the MTC, and the application form should include an estimate of back tax liability to the state for the prior four years. Online marketplace sellers' voluntary disclosure applications can be made anonymously until the taxpayer registers with the state and the VDA is executed. The online marketplace seller can choose the states and the tax types for which it will seek voluntary disclosure, and the application can be withdrawn any time before the VDA is executed. Participating states have agreed not to disclose to other tax jurisdictions the identity of any taxpayer that enters into a VDA, unless it is required by law, court order, or in response to an inter-government exchange of information agreement related to a specific taxpayer when the requesting entity provides the taxpayer's name and taxpayer identification number. Blanket requests from other jurisdictions for taxpayers' identities will not be honored.

Implications

Eligible taxpayers may want to consider participating in the VDI to have otherwise applicable penalties and interest waived for the tax period for which amnesty is granted.

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