Use Tax Amnesty Program and Why We Opted Out

In this post you’ll discover why and how we decided not to participate in the Amazon tax amnesty program. Below you’ll read in story form and my current comments are bolded.

If you want the short version here are steps to help you decide:

  1. Tax amnesty application deadline passed (it’s too late to apply). Check the Multistate Tax Commission website for updates on amnesty program.
  2. Pull sales reports and categorize by state.
  3. Analyze possible liability for each state. Here’s a list of states and their rates.
  4. Apply for sellers permits as an out of state business in each of the top earning (no locations within the state but have distribution center).
  5. Update Amazon seller central product tax information for the 5-10 states (to collect sales tax).
  6. File based on required frequency (to pay use tax).
  7. Look into services like tax jar which can help you document and file.

Story and correspondence starts here:

It was the 32nd email and approximately ten days into October. He’d been nagging me about this for months and always revert to the decision we made early on. “Let’s wait until states make laws we need to comply with.” I could feel his tensions growing stronger with each email communication. Tony, my business partner, reached out to groups of friends with Amazon businesses who gave him the same, “I don’t know what we’re going to do, here’s some resources we’re looking into” type response.

Tony was finding no comfort in these answers, if you can imagine. He’d forward them to me with a note, “Look, everyone’s freaking out, no one knows what to do.” All I could do was laugh, it didn’t seem like anyone but Tony was near mental meltdown about tax amnesty. Tony sent some emails to our CPA, who hadn’t responded to him in 72 hours, threatening our CPA be fired. Because Tony spent months frantically worrying about the issue that was closing in on decision time, 72 hours without a response seemed like a long time. I don’t take well to threats (to myself or anyone else) so I stepped in.

The Back and Forth

“I believe this whole tax amnesty is a fear marketing tactic to get amazon sellers to pay 23K (the amount Tony estimated to pay someone to handle this situation for us) or more for services they don’t necessarily need.

The fear tactic is working on you and you’re trying to get everyone else scared so they can jump on board by sharing all this bullshit noise.
“Our accountant has been dropping the ball on this all fucking year long?”
Quit being so dramatic. We just asked him about this a few days ago. I don’t think we should participate. My gut had always told me it wasn’t a good idea but I had no reason to back it other than… We should wait until laws are passed.”

“LOLs”, was Tony’s response. This is why we’re such good partners. But I was on a roll and wasn’t finished yet.

“Typically fear = lack of knowledge/information. You think this whole tax amnesty is so difficult and complicated because you don’t understand it. I was unclear about tax amnesty and that it was different from use tax filing. I’ve been doing it (filing use tax) for many years and theres a system/process that makes it all really easy. I’m about to record and pay use tax owed for California within the next couple days. Where’s your consistency? How come you never freak out over California tax? California isn’t feeling the love. It feels left out.

First of all, there’s no law yet. How can we do anything? We’d be scrambling in the dark with no end goal. State governments have been deliberating for years about how to collect taxes from Amazon sales. We haven’t heard anything definitive about how they’re going to do that yet.
2. if/when laws are in place, we’ll be required to submit sales tax from the time laws are in place. The whole tax amnesty application read like a census report. Plus it was extremely unclear as to what the businesses that applied would be responsible for. Each state had a different requirement and gray area wording.
3. if/when that happens we’ll adjust each item on our amazon back end to collect taxes from the states that require, at the percentage they require.
4. When taxes are due (how ever often the law tells us), we’ll sift through amazon and pull records of each state (just like we do now for CA).
5. Then we’ll pay each state what they’re owed.
I’m surprised that you of all people are actually considering paying 23-50k for services. Tony polices the banking and credit cards. He’ll challenge (almost) every dollar I spend. And scroll through all our expenses quarterly to cut any costs that aren’t adding value. It’s amazing. When I’m right I’d like the 23-50k per year I’ve “saved” the company. ;)” This is a line Tony uses every time he saves the company money haha

Tony responds:

Generally I agree, in finance when the herd goes one way, it’s usually best to go the opposite direction. And I know what amnesty is, I’m an immigrant. Do we have to apply for this amnesty? Indications were the deadline was September. For the first time here he “feels” calm in communication regarding tax amnesty. I’m relieved. 
Something happened in my brain during that last part of our conversation. The clarity hit me as soon as I read, “Of course I know what amnesty is, I’m an immigrant.”

“We don’t need our accountant, our CPA, our friends to make this decision for us. Let’s review our own sales information to make the decision.

You’re the data guy.
Can you please get me the following information:
Sales numbers (in dollars) separated by state for each of the following states as far back as you can go: Numbers for these states were important because they are participating in the amnesty program. My thoughts were, if the majority of our sales come through these states then we’ll apply. If not, we wont.
  • Alabama
  • Arkansas
  • Colorado
  • Connecticut
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts
  • Missouri
  • Minnesota
  • Nebraska
  • New Jersy
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Texas
  • Tennessee
  • Utah
  • Vermont
  • Washington DC
  • Wisconsin
Why applying for tax amnesty didn’t make sense for us:
  1. The application had an err of “After submitting you’re giving us consent to audit and collect for up to 7 years in the past.”
  2. Majority of sales were in only 4 of the states.
Instead we ran the numbers, identified our top 10 earning states and applied for sellers permits in top 5. We will likely apply for and collect/file for all 10. Only 4 of our top 10 earning states are included in the amnesty program. We applied for those states separately. We’ll keep you updated on how opting out of the amnesty program worked out for us.

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