Normally, voluntary disclosure programs require payment of tax, and perhaps interest and penalties, during a specified lookback period.  On September 1, the Multistate Tax Commission (“MTC”) announced a limited-time voluntary disclosure initiative (the “Online Marketplace Initiative”) that, in most participating states, requires no tax payment.  Twenty-four states and the District of Columbia are participating, including eleven states with current or planned Amazon fulfillment centers. 

The Online Marketplace Initiative is aimed at bringing online marketplace vendors into compliance.  For taxpayers meeting specific criteria, participating states will agree, in general, to waive sales and use and income and franchise tax liability, including penalties and interest for prior tax periods, without regard to any lookback period.¹ As is always the case, states will not waive tax, penalties or interest on collected but unremitted taxes.

Under the Online Marketplace Initiative, taxpayers must apply to enter a voluntary disclosure agreement with a participating state through the MTC.  The deadline for submitting applications to the MTC is October 17, 2017. 

The taxpayer must register as a seller or retailer to collect, report and remit sales and use tax and commence to file sales and use tax returns and remit tax as of the effective date set forth in the voluntary disclosure agreement.  If the taxpayer is subject to income and franchise tax, the taxpayer must begin filing returns and paying tax due, starting with the tax year that includes the effective date of the voluntary disclosure agreement.  With respect to both sales and use tax and income and franchise tax, the effective date of the voluntary disclosure agreement must not be later than December 1, 2017.

The eligibility criteria for participation in the Online Marketplace Initiative are as follows:

1. The taxpayer has not yet registered or filed returns with the state for the tax type that the taxpayer is seeking voluntary disclosure relief for, or had any other prior contact with the state concerning liability or potential liability for such tax type.  Note:  North Carolina will consider an application from a taxpayer that has been contacted previously.
2. The taxpayer is an online marketplace seller using a marketplace provider or facilitator for retail sales into the state and represents that it does not have any nexus-creating contacts in the state, except for inventory stored in a third-party warehouse or fulfillment center located in the state or other nexus-creating activities performed on behalf of the taxpayer in the state.
3. The taxpayer timely applies for voluntary disclosure relief through the MTC. 
4. The taxpayer agrees to register as a seller or 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 of the voluntary disclosure agreement (not later than December 1, 2017).  If the taxpayer is subject to income and franchise tax, the taxpayer must agree to timely file income and franchise tax returns and pay such taxes due, commencing with the tax year including the effective date (not later than December 1, 2017) of the voluntary disclosure agreement.  If the taxpayer has any collected but unremitted sales or use tax, then the taxpayer agrees to remit such tax to the state, including penalties and interest.  

The states participating in the Online Marketplace Initiative have agreed not to disclose to other taxing jurisdictions the identity of any taxpayer entering into a voluntary disclosure agreement, except as required by law, pursuant to a court order, or in response to an inter-government exchange of information agreement in which the requesting entity provides the taxpayer’s name and taxpayer identification number.  Blanket requests from other jurisdictions for the identity of such taxpayers will not be honored.

¹ It is extremely important to review each state’s specific terms for this Initiative, as not all participating states have agreed to waive lookback periods for all types of tax.  For example, Colorado will provide back tax liability relief for sales and use tax, but will require payment of back tax liability and interest for a four-year lookback period for income and franchise tax.