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Multistate Tax Commission Offers 16 State Marketplace Seller Amnesty Initiative

The Multistate Tax Commission (MTC) is moving quickly to implement a multistate amnesty program through its current National Nexus Program (NNP) for sellers making sales through marketplaces. The new MTC marketplace seller amnesty program is limited to remote sellers (3P sellers) that have nexus with a state solely as the result of: (1) having inventory located in a fulfillment center or warehouse in that state operated by a marketplace provider; or (2) other nexus-creating activities of a marketplace provider in the state. Other qualifications include: (1) no prior contact/registration with the state; (2) timely application during the period of August 17, 2017 through October 17, 2017; and (3) registration with the state to begin collecting sales and use tax by no later than December 1, 2017, and income/franchise tax (to the extent applicable) starting with the 2017 tax year.

The baseline guarantee is prospective-only (beginning no later than Dec. 1, 2017) tax liability for sales and use and income/franchise tax, including waiver of penalties and interest. The program also attempts to ensure confidentiality of the 3P seller’s participation by prohibiting the states and MTC from honoring blanket requests from other jurisdictions for the identity of taxpayers filing returns. Note, however, that the confidentiality provision would still allow for disclosure of the content of the agreement in response to: (1) an inter-government exchange of information agreement in which the entity provides the taxpayer’s name and taxpayer identification number; (2) a statutory requirement; or (3) a lawful order.

Logistically, applying for this amnesty opportunity will be very similar to the NNP Voluntary Disclosure Application process, and the MTC is even using the same online and PDF application forms (that require a separate application for each state). Note that this application also requests that the applicant provide a good-faith estimate of back tax liability to the state for the prior four (4) years. The application process is anonymous and 3P sellers will not be required to disclose their identity to any state until they register with the state and the voluntary disclosure agreement is executed. Applicants will have the opportunity to pick and choose which participating states they would like to enter into a voluntary disclosure agreement (VDA) with and the MTC will process the applications.

It is our understanding that nearly all of the 16 participating states that have committed so far will offer the baseline terms; however, a few states expressed concerns with the terms/qualifications on the last Nexus Committee call on July 31, 2017. In particular, Colorado expressed concern about their ability to provide the baseline guarantees in the income/franchise tax context. Based on this, and other concerns raised on the call, the MTC has allowed the flexibility to adjust these criteria based on state-specific needs/desires. Therefore, to the extent additional states sign-on to this limited time amnesty opportunity, the same terms and qualifications may not apply. Specifically, participating states have the ability to make elections regarding: (1) whether a limited (1–2 year) lookback period will apply, or the agreement will be prospective-only; (2) whether the agreement will apply to income/franchise taxes too or just sales and use tax; and (3) whether applicants must meet certain additional minimum thresholds to qualify, such as $10,000 in sales into the state during the prior year and/or $500 in back tax liability.

The MTC has received a firm commitment from the following 16 states: (1) Alabama; (2) Arkansas; (3) Colorado [pending final approval; potentially sales tax only]; (4) Connecticut; (5) Idaho; (6) Iowa; (7) Kansas; (8) Kentucky; (9) Louisiana; (10) Nebraska; (11) New Jersey; (12) Oklahoma; (13) South Dakota; (14) Texas; (11) Utah; and (12) Vermont. The following five states have expressed interest, but have not committed to participate yet (and may not): (1) Michigan; (2) North Carolina; (3) North Dakota; (4) Tennessee; and (5) Wisconsin [with a lookback to 2015]. Indiana and Pennsylvania wanted to participate, but the committee voted against their participation because they are not NNP member states.

Practice Note

Remote sellers using a marketplace provider should carefully review the terms of the final amnesty program before committing to it. In particular, to the extent Colorado or other states on the fence carve out their own requirements and terms, they may deviate from the underlying intent of the amnesty and/or not provide meaningful relief to marketplace sellers. The MTC program is moving very quickly, so 3P sellers should carefully monitor the MTC website for developments in the coming weeks, and are encouraged to consult with their trusted tax advisor before signing up to participate in a state.

© 2017 McDermott Will & Emery

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Stephen P. Kranz, taxpayer advocacy lawyer, McDermott Will legal practice
Partner

Stephen P. Kranz is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  He engages in all forms of taxpayer advocacy, including audit defense and litigation, legislative monitoring, and the formation and leadership of taxpayer coalitions.  Steve is at the forefront of state and local tax issues, including developments arising in the world of cloud computing and digital goods and services.  He assists clients in understanding planning opportunities and compliance obligations for all states and all tax types. ...

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Mark Yopp Tax Law attorney McDermott Will Law Firm
Partner

Mark Yopp is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  He focuses his practice on state and local tax matters. 

Mark has experience in state tax controversy, multistate planning and multistate legislative analysis.  He has assisted clients in analyzing various state tax and unclaimed property issues, including issues related to the internet and electronic commerce.  He has advised clients on the implications of state tax legislation.  Mark also has experience analyzing state tax issues in bankruptcies for both creditors and debtors.  Prior to joining the firm, Mark was an associate at a national law firm where he focused on state and local tax matters. 

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Eric Carstens, McDermott Will Emery, State Tax Controversy Lawyer, Taxpayer Advocacy Attorney
Associate

Eric D. Carstens is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office. He focuses his practice on state and local tax matters.

Eric assists clients with state tax controversy, compliance and multistate planning across all states for a variety of tax types and unclaimed property. He engages in all forms of taxpayer advocacy, including litigation, legislative monitoring and audit defense. He works closely with several of the Firm’s taxpayer coalitions focused on specific state tax...

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