The Indiana Department of Revenue recently announced a voluntary disclosure program (sometimes referred to as a “sales tax amnesty”) directly aimed at retailers who store inventory in 3rd party fulfillment centers. In the Indiana DOR’s own words, “This initiative is tailored to meet the unique needs of retailers that have inventory located in third-party Indiana warehouses and sell to Indiana customers.”
This post will explain the program, pros and cons of taking advantage of this program, and how to determine if you should participate.
Details of the Indiana Sales Tax Voluntary Disclosure
According to the Indiana Department of Revenue website:
The Indiana Department of Revenue (DOR) is offering certain retailers the opportunity to participate in a one-time voluntary disclosure initiative. This initiative is tailored to meet the unique needs of retailers that have inventory located in third-party Indiana warehouses and sell to Indiana customers.
Many of these retailers – selling goods to Indiana customers through service providers – have both income and sales/use tax obligations.
This special program is in effect until December 31, 2018, and offers out-of-state retailers the opportunity to enter into a voluntary disclosure agreement (VDA) with unique terms.
In other words, 3rd party sellers – such as Amazon FBA sellers – who have inventory stored for sale in a warehouse in the state are invited to voluntarily disclose past due sales tax liability.
In exchange, the Indiana Department of Revenue will:
- Decrease the look back period – this means that the state will limit the period which the state examines your sales tax obligations. This means that the state will only “look back” to January 1, 2017 when assessing sales tax owed and penalties.
- Agree to waive penalties – this means sellers will still have to pay back sales tax and interest (to the look back date of 1/1/17) and have to pay 1 year of income tax (2017). Sellers will then be required to pay sales tax and income tax going forward.
Sellers can apply to be part of this voluntary disclosure agreement until December 31, 2018.
Sellers who are Eligible to Participate
According to the Indiana Department of Revenue, sellers are eligible to participate in this voluntary disclosure program if:
- Applicant has inventory located in a third-party Indiana warehouse and sells to Indiana customers.
- Never filed tax returns in Indiana for tax type in question.
- Never registered for tax type in question.
- Never been audited or contacted by DOR about tax type in question.
Unfortunately, sellers who live in Indiana or who have had contact with Indiana taxing authorities (such as applying for an Indiana sales tax permit or receiving a sales or income tax-related notice from the state) are not eligible to participate.
Who Should (or Shouldn’t) Participate in the Indiana Voluntary Disclosure?
As with everything sales tax, the choice is up to you whether to comply. Our biggest recommendation is always to “know your numbers.” To do this, we recommend:
- Determine if you even have nexus in Indiana – This voluntary disclosure program is aimed at retailers that have inventory located in third-party Indiana warehouses and sell to Indiana customers. Specifically, Amazon has multiple fulfillment centers in Indiana. However, even if you sell on Amazon FBA, you may not have inventory stored for sale in Indiana. Your first step is to determine if you have sales tax nexus in Indiana by looking at your Inventory Event Detail Report in your Amazon account, or checking your TaxJar dashboard for a brown Amazon badge next to the state of Indiana. (Don’t have a TaxJar account? You can sign up for a 30-day free TaxJar trial. However, keep in mind that we only pull in 60 days of your historical data while on a free trial.)
- Determine your past due sales tax liability – You can use TaxJar’s “Expected Sales Tax Due” report to determine how much sales tax you should have collected in the state of Indiana, even if you haven’t been collecting. Read more about how to use the TaxJar Expected Sales Tax Due Report here.
- Consider “materiality” – Perhaps you do have past due sales tax liability in Indiana, but it’s a small amount of money. In some cases, it may make more sense to register for a sales tax permit going forward rather than participate in the Indiana voluntary disclosure program. Read our blog post all about “When to Register for a Sales Tax Permit” to help you determine what to do.
- Make a plan of action – Once you’ve determined that you have nexus in Indiana, now’s the chance to determine if you want to take advantage of the voluntary disclosure program, register for an Indiana sales tax permit going forward, or wait and do nothing. If you would like help with this decision, we recommend contacting a vetted sales tax expert.
We spoke with two sales tax experts to get their take on the Indiana voluntary disclosure program.
Mike Fleming of Sales Tax and More noted that the limited look back period Indiana is offering is two years fewer than most states would normally look back during a program like this. If you had sales tax nexus in Indiana prior to January 1, 2017, this could be a golden opportunity for sellers to mitigate some of their past due sales tax liability.
Though Lauren Stinson of Cherry Bekaeart reminded sellers that this disclosure focuses on both sales tax and income tax. ” I think income tax is the next wave for states to try to get their piece of the pie. I think people will be shocked about the income tax piece, as there is quite a lot of denial that income tax is also due.” You can read more about when Amazon and other online sellers need to consider income tax nexus here.
Added Stinson, “Indiana is smart. They are letting sellers off the hook quite a bit-but not completely, which is fair to those companies that took the time to get compliant early on. I bet if Indiana sees success, many other states will follow.”
Fleming concurred, “I think the biggest takeaway from this offering, is that Indiana has just told us that they do not believe Amazon is responsible [for collecting sales tax on 3rd party sales]. In their announcement, they even talk about avoiding unexpected audits. I expect we will see a more aggressive Indiana going forward.”
If you have questions about selling on Amazon FBA, or through other marketplaces, and sales and income tax, we recommend contacting one of TaxJar’s list of vetted state and local tax experts.
How to Participate in Indiana’s Voluntary Disclosure Program
According to the Indiana Department of Revenue, applicants should apply by submitting Form VDA-2 by email, mail, or fax at:
Voluntary Disclosure Office
Indiana Department of Revenue
100 N. Senate Ave., IGCN 241
Indianapolis, IN 46204
Phone: (317) 233-6036
Fax: (317) 234-5531
Do you have questions or something to say about this program? Start the conversation in the comments or in our Sales Tax for eCommerce Sellers Facebook group!