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Online retailers: Could you be making the most of the USA’s tax amnesty?

Geoff Collis

10 October 2017

If you sell goods online, then you might want to know about a tax amnesty operating in the US – and you don’t have to be based in the States in order to be affected.

The Online Marketplace Voluntary Disclosure Initiative (link to: http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative) is offered by the Multistate Tax Commission (MTC) in America and runs between 17 August and 17 October 2017. The Initiative allows online sellers to claim relief, as well as related interest and penalties, from a number of taxes, including sales tax, income tax and franchise tax.

Twenty three states in America and the District of Columbia are taking part, but it doesn’t solely apply to businesses in the US. The idea is to introduce the Initiative worldwide as a tax amnesty programme, and a way of simplifying cross border online activity in a complex area of tax law.

Why has it been introduced? The main reason is to close down a tax loophole which was being exploited by online retailers in order to pay no tax. Put simply, there needs to be a tax-related connection to a State so that the correct tax can be applied. However, if a seller uses a third party, such as Amazon, to sell goods, there is unlikely to be a connection in place for a particular State, and therefore no tax charges are applied.

Many companies that sell through Amazon to US customers use their fulfilment programme, which allows sellers to pay a fee in exchange for using their storage space. Because this space is not recognised as permanent premises, there are no liabilities due.

US authorities have recognised that such marketplace providers or facilitators have arguably created their own tax presences. The loophole is responsible for around $2bn in uncollected State sales taxes and therefore, there is a need to close down this loophole.

A state will consider a voluntary disclosure from an online marketplace seller under the amnesty scheme if they meet the following criteria:

  1. They have not yet registered to pay taxes in the State
  2. There is no use of a marketplace provider/facilitator, such as Amazon, for storage, and
  3. Has no tax presence in the State

Eligible participants must agree to register as a seller or retailer and collect, report and pay taxes in the applicable State, via the MTC website. They can also choose which State they wish to register in and which taxes they would like to claim relief on.

Tax collections, reporting and remittance obligations must be fulfilled no later than 1 December 2017. You can seek amnesty for non-payment of certain State taxes retrospectively, but they must be declared and paid from December 2017 onwards.

As well as States-side businesses, this could also impact any UK businesses who have dealing with the United States, either as a selling platform, storage facility or overseas shipping address.

If you think your business is affected, contact your local Wilkins Kennedy partner to discuss how to take matters forward.

About Geoff Collis

Geoff Collis

Geoff joined Wilkins Kennedy in November 2013 following the merger with CW Fellowes . He joined CW Fellowes in January 2009. He trained locally before joining one of the top six accountancy firms in the south where he was a director in the business outsourcing and advisory team. Geoff has more than 25 years' experience in advising small and medium-sized enterprises on domestic and international matters. He advises start-ups to multi-million pound turnover businesses including asset-rich sole traders, partnerships and companies in a variety of sectors. Geoff has also undertaken non-executive finance roles for businesses in the defence, environmental, professional, property and fast-moving goods industries.

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