Updated January 23, 2017 at 2pm ET to add more info for sellers currently registered in Massachusetts
Have questions about Amazon sharing your information with Massachusetts? Join us for a live video chat on Tuesday 1/30/18 at 10am PT/1pm ET and bring your questions!
Amazon 3rd party sellers received this sales tax-related notice from Amazon yesterday:
Why is Amazon handing over your information?
Back in September 2017, a Massachusetts judge ordered Amazon to provide the Massachusetts Department of Revenue (DOR) with identifying information on any Amazon 3rd party sellers “who stores, or who has stored, any tangible personal property in any location in Massachusetts that is, or was, owned or leased by Amazon Retail LLC or any other affiliated entity after January 1, 2012.”
Massachusetts’ aim was to determine which 3rd party sellers had not registered and begun collecting sales tax from buyers in the state. From there, they planned to send notifications to these sellers requesting past due taxes, and applying fines and penalties. According to former sales tax auditor (and current TaxJar researcher) Graham Martin, the main goal is to get new retailers registered to begin collecting sales tax going forward.
While at the time Amazon fought against this court order, from the contents of this email we can see that Amazon lost the battle.
According to this email notice, they will provide the following information to Massachusetts’s taxing authority:
- 3rd party seller’s contact information – this includes name, address, federal tax ID number and phone number
- Information about inventory stored in Amazon fulfillment centers – Massachusetts is requesting the estimated value of sellers’ inventory, calculated based on selling prices in late 2016 and 2017. This makes sense because the first Massachusetts Amazon fulfillment center did not open until October 2016.
What should Amazon FBA sellers do now?
The state of Massachusetts considers businesses that have inventory stored in the state to have sales tax nexus in the state. For Amazon FBA sellers, this means any seller who has inventory stored in Massachusetts’ Amazon fulfillment center is required to register for a Massachusetts sales tax permit and collect sales tax from Massachusetts buyers.
If you are already registered and collecting sales tax in Massachusetts, then it note that Massachusetts will now be able to compare Amazon’s numbers with your own. If you have not remitted all sales tax owed, it may be a good idea to determine if you have further sales tax liability.
But if you are an Amazon FBA seller and are not sure if you have sales tax nexus in Massachusetts, there are steps you can take to determine if you will be affected by Amazon sharing information with the Massachusetts DOR.
Determine if you have sales tax nexus in Massachusetts
You can find this information in your Inventory Event Detail report in Amazon Seller Central. Or, for a faster way of determining if you have nexus in Massachusetts, check in your TaxJar account. Navigate to Account > State Settings and we’ll show you a brown Amazon badge next to each state where we show you have been shipping items to customers via an Amazon fulfillment center.
If you do not have a TaxJar account, you can sign up for a 30-day free trial of TaxJar. Bear in mind that a free trial only includes your last 60 days of data. So if you have not shipped inventory out of the Massachusetts fulfillment center in the past 60 days, we will not show an Amazon badge next to Massachusetts on your state settings. If you choose a TaxJar subscription plan, we will pull in your Amazon data from January 1, 2017 until the current day, and that will include showing if you have inventory stored in Massachusetts since that date.
Calculate your Massachusetts Sales Tax Liability
If you do find that you have nexus in Massachusetts, your next step is calculate your potential past due sales tax liability in the state.
You can do this by working with an accountant or spreadsheet, but the quickest and easiest way to do this is via TaxJar.
If you are not already a TaxJar subscriber:
If you subscribe to TaxJar today, we will pull in all of your transaction data back to January 1, 2017. We can also provide you with previous years’ data for an extra fee.
If you have your transaction data in .csv format, you can also upload a .csv to TaxJar. From there, we will slice and dice your data through our sales tax engine and determine your sales tax liability.
Once you have subscribed to TaxJar (or if you are already a TaxJar subscriber):
Find “Massachusetts” on your TaxJar dashboard. If Massachusetts is in yellow, it means that TaxJar’s sales tax engine thinks that you should have been collecting sales tax in the state. Here’s an example of an Amazon seller who is not collecting sales tax in Massachusetts but has sales tax nexus there:
As you can see, TaxJar’s sales tax engine expects that this Amazon FBA seller should have collected $360.78 in Massachusetts over the past month, but they collected $0.00. This is the type of information that Massachusetts is looking for. They are trying to determine if there are Amazon FBA sellers with sales tax nexus in their state who are not collecting sales tax.
Keep in mind that this particular seller’s report only shows his sales tax liability in the past month. With TaxJar, you can click on your Massachusetts local report to dig into how much sales tax you should have collected over other time periods.
Also keep in mind that Massachusetts will assess further fines, penalties and interest on top of the past due sales tax that was not collected and remitted.
Here’s a video about how to use your Expected Sales Tax Due report to determine how much sales tax you should have collected in a state:
Take Preventative Action (if Possible)
Amazon has stated that they will turn over the requested information to the Massachusetts DOR by Friday, January 26, 2018.
It is possible that sellers with sales tax liability in the state can contact a sales tax expert and preemptively participate in Massachusetts’ Voluntary Disclosure Program. Under this program, taxpayers can come forward anonymously with the help of a sales tax expert and, after a 3-year “look back” period where Massachusetts determines your sales tax liability, you may be eligible to have some fines and penalties waived.
What will happen next?
According to Martin, a state’s next step in situations like this is to begin sending letters to Amazon FBA sellers on the list. If you receive a letter from a state, we recommend speaking with a sales tax expert before responding. These notifications are full of pitfalls that unwary sellers can easily fall into.
As for other states, depending on Massachusetts’ success, they may take a similar action. Or, they may take action such as the state of Washington, which has passed a law that marketplaces (like Amazon) are responsible for collecting sales tax. Or they may take a bold action like South Carolina and find themselves embroiled in a legal battle with Amazon.
Want more information? This is a developing story. Join us for a live video chat on Tuesday January 30, 2018 at 10am PT/1pm ET to speak further with sales tax experts about Amazon’s actions and how sellers can protect themselves from sales tax liability.