States Are Offering Tax Amnesty to Ecommerce Business Before They Drop the Hammer
Largely untapped sales tax revenue from ecommerce transactions is becoming a funding focus for state tax commissioners as many state governments wrestle with rising healthcare, infrastructure and operating costs, coupled with flat or declining federal funds and stagnant state income tax inflows.
Since the National Conference of State Legislatures estimated as much as $26 billion in online sales tax monies went uncollected in 2015, all state tax agency have been committed to efforts to capture that cash. Many are dedicating personnel and technology to recover owed sales tax revenue for as far back as four years. If you own an online storefront but did not capture those transaction costs from your customers along the way, you will eventually be responsible to pay. However, almost half of the states are taking a temporary break from that taxing activity -- for now.
Since August, a quasi-governmental coalition of taxation agencies across 24 states has instituted a temporary tax amnesty program for ecommerce businesses.
"Typically, online storefront owners are responsible to pay the total amount of back taxes, penalties and interest accrued for the entire look back period, even if the owner voluntarily steps forward and notifies the state agency that required sales tax has not been collected," said Ned Lenhart, chief knowledge officer at Ampersand Accounting, a leading consulting firm that specializes in sales tax management and compliance for ecommerce retailers. "Based on the size of the individual ecommerce store, that sales tax bill can be tens or hundreds of thousands of dollars. That size of a liability could put someone out of business."
Lenhart says that states participating in this amnesty program have agreed to "...totally forgive the entire tax bill, interest and penalty..." but only through voluntary disclosure applications made through October 17, 2017.
"What makes this amnesty program unique is that the member states of the Multistate Tax Commission have not only agreed to forgive the sales tax liability estimate for the look back period, they will also forgive the estimated income tax associated with those online sales for the same period. This is an once-in-a-lifetime opportunity for ecommerce business owners but the clock is ticking to take advantage," said Lenhart.
However, Lenhart stressed that ecommerce entrepreneurs should not go it alone. He said this unprecedented opportunity has filing, registry and eligibility nuances that require expert attention to leverage and maximize it.