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By Shane Ratigan JD, LLM and Jennifar Hill JD, LLM

Online marketplace sellers can take advantage of a new multi-state tax amnesty program – if they apply by October 17, 2017.

Online marketplace platforms allow big and small companies to access a global market without incurring significant advertising or marketing costs. For those sellers that are looking to expand their customer base, using an online marketplace might be an attractive option.

Many sellers that utilize online marketplace providers also take advantage of marketplace providers’ order fulfillment services. Order fulfillment services help sellers avoid headaches by allowing them to take advantage of economies of scale. They do this by acting as an outside resource that maintains inventory, handles and packs orders, invoices customers, ships items, and even processes returns for the products sold.

Fulfillment Services and the Duty to Collect Sales Tax

In the taxation universe, the term “nexus” refers to the connections or activities with which a person or company engages. Those connections or activities may trigger an obligation to comply with tax rules within a given state or locality. For sales tax purposes, having physical presence in a state results in nexus.

For sales tax purposes, states often believe an entity has an obligation to comply with sales tax rules when the company has inventory located in the state. Once inventory is stored in a given state, the state will often take the position that the owner of the inventory has an obligation to comply the state’s sales tax rules.

For all the advantages order fulfillment services offer, there is at least one important complication to consider: Having inventory in an online marketplace provider’s fulfillment center in any given state likely triggers an obligation to calculate, collect, and remit sales taxes on sales made to customers within that state.

Sellers with an obligation to collect and remit sales tax are liable for uncollected tax, along with interest and penalties.

What to do Now?

For companies that are only now considering utilizing an order fulfillment service provided by an online marketplace provider, keep the concept of sales tax nexus, and the obligations it can entail, in mind.

For companies already engaged in a fulfillment relationship with an online marketplace provider, find out where your inventory is! These locations likely trigger sales tax nexus in the respective states.

The combination of new technology (online marketplace platforms), a new distribution channel (order fulfillment service providers), and an old way to trigger nexus (inventory stored in state), has put many e-commerce vendors in a situation they did not plan for.

At least 19 states are now offering a coordinated sales tax amnesty program that targets online marketplace sellers that use order fulfillment services. The program, called the Online Marketplace Seller Voluntary Disclosure Initiative, is being rolled out under the auspices of the Multistate Tax Commission (MTC). More details on the initiative, can be found on the MTC website.

How to Qualify for the Program

There are major benefits for those who participate in the program, including waiver of tax for past periods, waiver of penalties, and even income or franchise tax amnesty if requested. To qualify for the amnesty program, applicants must:

  • Not be registered with the state taxing authority;
  • Have no other nexus creating circumstances, besides those created by an arrangement with an online marketplace provider;
  • File their applications within the provided time frame; and
  • Once granted amnesty, register for the applicable tax accounts by Dec. 1, 2017.

In addition, the program rules allow an applicant to maintain anonymity throughout the process, with the MTC revealing the applicant’s name only if a voluntary disclosure agreement is signed.

These qualifications, and the risks involved, demand a closer look at an individual seller’s facts and circumstances to assess if there is a fit. Qualified sellers that choose to participate in the program could receive significant financial benefits and risk reduction. However, sellers don’t have much time to act; the program ends on October 17, 2017.


Please contact Bob Heller, Shane Ratigan, or another member of the CN state and local tax practice at with any questions, comments, clarifications, or inquiries if you think your company might be ready to participate in the Online Marketplace Seller Voluntary Disclosure Initiative.


Shane Ratigan, Senior Manager and Jennifar Hill, Senior, are part of Clark Nuber’s state and local tax practice team.

© Clark Nuber PS and Developing News, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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Articles and Publications

Washington B&O Tax Alert: Annual B&O Tax Apportionment Reconciliation Due October 31

The form must be submitted to the Department of Revenue by October 31st of each year. Failing to file the reconciliation may result in penalties. The Department of Revenue allows businesses to use the prior year’s apportionment factor for reporting current year liabilities. This simplifies the business’ reporting method, but requires the business perform a true up at the end of the year. The true up helps determine the current year’s factor, based on actual data.

What is the Reconciliation’s Purpose?

The purposes of the annual reconciliation are to correct incomplete year-to-date data and update apportionable receipts that have been reported to the Department using the previous year’s factor. If a business owes additional B&O tax as a result of the reconciliation, late payment penalties are automatically waived – provided the form is filed by the October 31st deadline. We recommend that businesses that conduct apportionable activities file the form, regardless as to whether they have any differences to report. This is because the Department will impose up to a 29% penalty in cases where the reconciliation was not filed, should they discover that additional taxes are due in a future examination – say in the case of an audit. In addition to the late payment/late filing penalty, the Department may also impose an additional 5% substantial underpayment penalty if the taxpayer has paid less than 80% of the tax determined to be due, as calculated by the Department. The Annual Reconciliation of Apportionable Income form is available here.


As of June 1, 2010, businesses that earn revenue from “apportionable activities” are required to calculate B&O tax using a single sales factor apportionment method. “Apportionable activities” include most services and intangible licensing. They also include services provided by other specified businesses, such as travel agents, tour operators, and real estate or insurance brokers. When performing the calculations, the apportionable revenue attributable to Washington State acts as the factor’s numerator. The denominator of the apportionment factor is the apportionable revenue attributable to those states, including Washington, wherein the business files business tax returns, or is deemed to have created nexus under Washington’s “economic” nexus standards. To determine how many of the business’ receipts are subject to B&O tax, the business’ total gross income from apportionable activities is multiplied by the apportionment factor. For B&O tax purposes, taxpayers are statutorily permitted to determine the apportion revenue using a receipts factor that is based on the most recent completed calendar year’s data. For example, a business could use the 2015 apportionment factor to calculate B&O tax on the company’s monthly or quarterly 2016 B&O tax returns, or use year-to-date data on each return. Regardless of the method the business chooses, taxpayers are required to complete an “Annual Reconciliation of Apportionable Income” once actual data for the year has been compiled. But again, this must happen no later than October 31st of the following year.


Please contact Bob Heller, Nicole Lyons, or another member of the CN state and local tax practice at with any questions, or if you’d like assistance fulfilling this requirement. Nicole Lyons is a manager in Clark Nuber's state and local tax group. © 2017 Clark Nuber PS All Rights Reserved

Federal Research Credit: Could Your Business Save on Taxes?

What is the Credit Based On?

The federal research credit is a wage-based program, which you can calculate by identifying the wages paid to employees who perform qualified research activities. Amounts paid to outside consultants are also included in the credit at 65% of each qualifying dollar spent. In some cases, supplies that are consumed in the research process can also be included in the calculation. Multiple methods of calculating the federal research credit may be available. But in short, the credit available to the qualifying business activity equates to 6%-20% percent of the incremental research expenses. The exact percentage is determined by the elected applicable method.

Who Qualifies for the Credit?

Any business performing qualifying research can qualify for the benefit. Since the incentive is in the form of a tax “credit,” the business must have a tax liability to get a current cash benefit. It is not a refundable credit, but the portion of a credit that is not used in the year it is generated can be carried forward. Since regular corporations are subject to federal tax, they can claim federal research credit. Businesses that are considered “pass-through” entities for federal income tax purposes, such as LLCs that have elected partnership status and corporations (or LLCs) that have elected S corporation status, pass the credit through to the owners of the entity.

What Qualifies as Research Activity?

Only business activity conducted in the U.S. qualifies. Further, the research activity must be “technological in nature.” This means that it must involve a hard science, such as computer software; engineering; medical, biological, or physical research; or other similar science disciplines. Additionally, “funded research” does not typically qualify. This means that if research activity is funded by an outside source, such as grants or customers, the arrangement must be carefully evaluated to determine if it qualifies. That said, the fact that the research is partially or wholly funded by third parties does not automatically disqualify the activity.

What Activities Do Not Qualify?

The rules specify which business activities are disqualified. These activities include:
  • Costs incurred once production of the component begins;
  • Adaptation of an existing component to a particular customer's requirement or need;
  • Efficiency surveys;
  • Activity related to management function/technique;
  • Marketing research;
  • Advertising or promotions;
  • Routine data collection/testing to evaluate quality control;
  • Activity related to style, taste, cosmetic or seasonal design factors.

New Opportunities that Apply to 2016 and Beyond  

Alternative Minimum Tax (“AMT”) Offset. Until 2016, the credit could only be used to reduce a regular tax liability. Beginning in 2016, however, it can also be used to offset AMT liabilities. The AMT offset is only available to businesses with under $50 million in gross receipts. However, credits from qualifying businesses can still apply to individual tax liabilities. Payroll Tax Election. Beginning in 2016, qualified startup businesses can generate research credits. Qualified startup businesses include those that have not had “gross receipts” for more than 5 years, and have had gross receipts of less than $5 million in the claim year. Research credits can then be used to offset the employer’s portion of the FICA tax in the following year. It’s worth noting, however, that startups should consider the related party rules when applying the gross receipts tests. Since many startup businesses don’t generate taxable income in the early years after formation, the credit program historically provided little, if any, immediate benefit. Now that the credit can be used to offset payroll taxes, the credit has real value for qualifying startups.


If you would like help determining if your business activity qualifies for the research credit incentives, and/or determining an estimate of the benefit, please contact Rene Schaefer at 425-709-4837 or © 2017 Clark Nuber PS All Rights Reserved
  • Costs incurred once production of the component begins;
  • Adaptation of an existing component to a particular customer's requirement or need;
  • Efficiency surveys;
  • Activity related to management function/technique;
  • Marketing research;
  • Advertising or promotions;
  • Routine data collection/testing to evaluate quality control;
  • Activity related to style, taste, cosmetic or seasonal design factors.

Is Blockchain Technology in Your Company’s Future?

What is Blockchain Technology? Unless you are following, or using, a cryptocurrency like Bitcoin or Ethereum, you may not know that Blockchain is the underlying technology that drives those digital currencies. To grasp this concept more easily, you can think of Blockchain as the operating system, like a phone or tablet, and of Bitcoin as an app on that phone or tablet. Blockchain technology represents the coming together of several technologies and ideas that have the potential to solve many problems. Operating on the internet, a Blockchain is a network that allows transactions to occur in an environment that is (1) transparent, (2) without the need of a trusted intermediary, (3) immutable, and (4) secure. There are many great resources that explain these features of Blockchain technology in detail. I recommend starting by looking at this video by Don Tapscott. How Can Your Company Use Blockchain? As you might expect, Blockchain technology’s use is not limited to Bitcoin and Ethereum. To provide another parallel example, in the early days of the internet, email was the application that most people initially used. Over time, however, the power of the worldwide web quickly expanded and other applications soon overshadowed email in terms of everyday use. Blockchain technology is poised to do the same. If you are involved in commerce where digital currency is the norm, or becoming the norm, you will quickly become a participant in Blockchain technology. As you begin learning and implementing the technology, however, we recommend caution – transactions completed using Blockchain technology are secure, but irrevocable. In contrast to transmitting your credit card information over the internet, Blockchain technology eliminates the intermediary in the transaction (your bank). This means that you or your company are assuming the entirety of the risk in the case of incorrect or fraudulent transactions. Additional and Future Uses Beyond digital currency, Blockchain’s uses are still mostly on the drawing board. But just as mobile phone apps exist to allow exchanges of Bitcoin, apps will be developed to support broader uses of the technology. For example, Blockchain technology is being used today for certain private securities transactions, commercial real estate leasing transactions, and for tracking the provenance of diamonds. To complete these transactions, so-called “smart contracts,” which contain self-executing provisions, are being developed. These “permissioned Blockchains” are open to invited participants, unlike the “public” Blockchain of Bitcoin and Ethereum. When Should You Implement Blockchain? If lessons of the past are any indication, the earliest adopters of these applications may not reap the most benefits. But we can watch and learn their processes now to know when it is right for us to enter the fray. Just like any other system or participation, we must understand the rules and integrity of the process. There are no current conventions or standards for evaluating, or auditing, the integrity of a Blockchain. With that in mind, we recommend moving slowly and deliberately when adopting the technology. But if the speed of Blockchain’s development is any indication, you won’t have to wait long for standards to emerge. While you are waiting, keep watching and reading. Questions? Please contact Ron Rauch at with any questions about Blockchain or other parts of this post. © 2017 Clark Nuber PS All Rights Reserved

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