What’s Happening
Big picture, this is all about to come crashing down, I can feel it. And every day that I talk to more people, more states, more influencers, this becomes more and more obvious to me. I am trying to get it to come crashing down before the deadline so you don’t have to worry. I know that there is anxiety and fear, but stay the course.
I’m doing everything possible to make that happen by the deadline, as well as expose the fact that the deadline is absurd. I doubt mega corporations could comply with what the MTC is asking you to do in 60 days, so how would anyone expect you. Yet, why do the mega corporations get a year’s worth of advance notice on these things, and you get only 60 days? Someone needs to answer for that and they need to answer for it publicly.
The good news is we don’t care about the deadline in terms of FBA because you have nothing to request amnesty from. You are not the responsible party for this tax, Amazon is. So, I can’t see a scenario where anyone in their right mind should do this, deadline or not, but I understand the psychological effect it has on everyone, and I’m doing my best to make things happen before the deadline, either by winning the battle, or at least by showing you how the walls are starting to crumble.
And, just to be clear, when I say come crashing down, I’m not trying to kill the amnesty program. Certainly if you sell a lot on Craigslist, which is what the MTC seems to have FBA confused with factually, this might be a good time to come forward with respect to those sales, but even so your Amazon sales are still Amazon’s responsibility. If you sell on multiple platforms and you are FBA, consult a state and local tax lawyer.
Other platforms, maybe you should consider it. I know very little about how Etsy does business. I do know that nobody else has anything like FBA other than Amazon. So if you are on one of those other marketplaces as well, I strongly advise you contact a multistate tax lawyer that can help you. Not your local form filler, an actual lawyer with actual knowledge about all 50 states and municipalities.
Whatever your situation is, I’d obviously love to help you. However, regardless of whether you engage me, just make sure you engage someone, and make sure that someone is well versed in multistate taxation.
Thank You to Those Who Have Contributed
I also need to thank those of you who have contributed to our cause. And, a special thanks for the amazing support we’ve received from those sellers I’ve spoken with personally. I have truly enjoyed these conversations.
If you haven’t contributed yet, I implore you to do so today. Perhaps you are waiting for something to happen overnight, but that’s the wrong mentality. I can’t make anything happen overnight, and we may not make anything happen at all if we don’t have the money to bring in the hired guns.
As we’ve said often throughout this ordeal, change is possible if we fight back. And we are fighting back. Change is happening behind the scenes, but for it to happen front and center it’s going to take time. More resources would make this go a lot faster. Every dollar contributed goes towards us doing everything in our power to fight for you. If you are on the fence I urge you to contribute today.
And, for those that are considering talking to a lawyer anyway, why not donate $500, $1,000 or more, and take me up on the free conversation. I set it up that way for a reason, as just about any lawyer is going to charge that much for their time anyway. At least this way you can talk to someone who really has fought just about every state (except Hawaii unfortunately) and at the same time support the greater fight.
What Have I Learned
These past few weeks I’ve learned a lot, and that learning will be the basis of my strategy to accomplish our goal of fighting back. Specifically, I’ve learned from states participating, and those not participating, as well as the MTC, this entire thing was bad from the start in terms of how it originated. I don’t know how else to sugar coat it, it was just bad. I’m not going to name names, I’m not going to point fingers, but there is something to be said about owning up to your mistakes and working to correct them rather than to doubling down to try and save face while driving people further into despair.
Some Basic Audit Strategies
I’ve spoken to a lot of sellers who’ve told me stories about how they thought they wanted to hedge their risk and pay in before the taxing authorities got to them via a voluntary disclosure. Or, that they were audited and assessed, and they just simply paid the assessment for a waiver of penalties.
First of all for those of you in similar boats, here’s some free advice. Unless you’ve just been caught deducting your dog as a dependent, don’t just pay what the auditor says, it’s like paying sticker price for your car. Even more important, NEVER communicate directly with your auditor without a lawyer. Auditors ask trick questions designed to get you to make admissions to the point where you are boxed into a corner.
Unfortunately, I’m learning that smaller businesses don’t realize this. It almost always pays to have representation when under examination by a state. Even if it’s just a nexus questionnaire, get advice from an attorney because there are trick questions there. Unless you know what you are doing when you send that form in, the response is likely to be an audit, either in person, or via mail/email (“desk audit”).
Lawyers also know how to settle audits. I’ve settled many audits for 10 cents on the dollar, or what we call “nuisance value.” I’ve settled $100 million dollar audit assessments by getting states to pay my company millions of dollars back. It’s foolish to assume just because an auditor wrote it on a piece of paper it’s somehow set in stone, or even correct.
Tip of the Day: 99.999% of the time, hiring a tax lawyer to handle your audit will save you vast multiples relative to their cost. If you lose money by hiring a lawyer the lawyer is either really bad, or their bill rate is too high. I’ve never seen it happen. You tell me, is it worth $20,000 to save $200,000? Paying the audit is never the way to go.
So, if you are one of those folks I’ve heard about who has paid money to a state under a Voluntary Disclosure, or, if a state has audited you and told you that you owe them back taxes, please let me know. It’s time to put an end to the endless preying on sellers by these states. The states see you as small fish, incapable of defending yourself. It’s probably easier for them to go after 1,000 you than one Amazon, but that doesn’t make it right when the law is on your side, not Amazon’s.
It’s time to put an end to that. Let me try and help you get your money back. Let’s send a message to the states that 3p sellers aren’t pushovers.
What Have I Been Up To
A lot of talking to a lot of people. I’ve been talking to states behind the scenes, I’ve been talking to fellow practitioners, the press and the MTC. I’m reaching out early and often to the states involved to see if they really understand the consequences of their actions. I’m also talking to the states not involved to get their support in pushing back against the MTC because their citizens are being wrongfully attacked by these Amnesty States. Most of the reception I’ve received has been positive, and I’m hopeful that in the coming weeks we’ll see a more public response from some of these states.
I’ve spoken to the MTC’s Richard Cram, and unfortunately he’s not moved by your struggles, nor is he willing to reconsider whether this is the appropriate course of action from a legal and policy perspective. And, despite the fact that there are facts about Amazon that the MTC is unaware of (like the fairly important concept called commingling), the MTC is not showing any signs of empathy at this time.
Why is that? Mr. Cram and some of the states I’ve spoken to have told me that this was a negotiated deal with the seller community. And, the seller community knew all about it, since Mr. Cram spoke at a major seller conference earlier this year. Therefore, in the minds of the states basically everyone in the seller community agreed that this was the right way to collect tax, and the short timeline was necessary since part of the quid pro quo for forgiving the back sales taxes was that these states would get to collect the taxes during holiday 2017.
You’re a seller, were you consulted or told about it? Where did your feedback go?
Now, when I spoke to some of the participating states, some of them were utterly shocked to hear what I had to say about the community, compared to their impressions from the MTC’s research into this matter. These high level state officials did not know how Amazon FBA worked, they don’t know how Amazon treats their buyers. They just assumed the MTC did the due diligence.
However, once they start to realize that the MTC could barely articulate how an Amazon FBA seller was different than a craigslist seller, I could hear the questions bouncing back and forth in their minds, even if they had nothing to say in response. Nonetheless, without political or media pressure, it’s going to be hard to get that change to happen quickly. But we’ll get to that shortly.
Thank You Commissioner Gordon
I also want to acknowledge a Tax Commissioner from a major state that I spoke to last week. As I started to explain to him how FBA really worked, he immediately noticed something, and I absolutely love that he did that. He noticed that the Apple App store is effectively the same fact as the Amazon marketplace. I’ll admit, it took me a moment to follow that, but now I totally see it, and I think it’s a very powerful analogy.
You see, in their view, Amazon representing the party required to collect the tax on behalf of its 3ps was essentially the same under their state law as asking Apple to collect on behalf of its independent App developers who sell on its App marketplace. So, just as Apple would be considered the retailer/vendor in any App store marketplace purchase transaction (since the app developers set the price on the Apple App store marketplace just like Amazon sellers do), Amazon would be the retailer for their own marketplace. Why would states be comfortable treating Apple as a retailer, but not Amazon?
Based on my experience, I’ve found these are the analogies that help you win cases. These analogies send a powerful message, and make people want to side with you. So, if you as sellers have any analogies you’d like to contribute that you think would be helpful in getting the states to see what’s really going on, please post your thoughts in the comments.
The Battle is Just Starting to Heat Up – What Else Can You Do to Help
While I continue to fight the fight behind the scenes, I am hopeful more sellers will come forward and support us so that we can accelerate our efforts. However, I’ve begun to realize that there is a political side to this that needs to be pressed more by the community. Because this was an entirely administrative move, meaning no laws had to be passed to do it, I suspect that many on the political side of these states are unaware that their small business constituents have been put under attack by the actions of their respective Department(s) of Revenue and the MTC.
Therefore, I would like to raise as much political awareness as possible. I need sellers to call their Congress-people and let them know. If you have political contacts in your state, federal or state level, even if it’s not an MTC amnesty state, reach out to me.
No politician wants to be painted as supporting Amazon over small business, so let’s make it known that unless the state reverses course on this, then politically they will be seen as doing exactly that. Does Bernie Sanders know that Vermont has chosen Amazon over small business? How do you think he’d react if he did know? And he’s just one example. There are many more politicians who must pay attention to this if they are forced to listen to all concerns.
Sellers, help me get that message out to those who need to hear it. It’ll be a swift victory if we can do this, but we need to do it now! Some may not listen unless we make them listen!
Finally, the press. We’ve reached out to CNBC, Bloomberg, the Wall Street Journal and the Seattle Times, among others. In terms of positive response, we are tracking their interest in the sales tax matter while they instead pursue stories about Amazon’s second HQ, and the Whole Foods acquisition, and other stories they think are bigger. Some of these publications are awaiting contact from sellers themselves on this matter before they proceed.
I’m scheduled to speak to a major conference, Retail Global this week in Las Vegas, and I am looking forward to meeting as many sellers as possible. Come to my breakout session on Thursday, and be ready to ask me whatever is on your mind. My goal is to answer your questions, not give a boring tax lecture. If you see me elsewhere at the conference, don’t hesitate to introduce yourself and ask me a question. I want to be a resource, and I want to be helpful, I really don’t mind.
Nonetheless, a lot more needs to happen beyond conferences or direct, face-to-face contact with sellers and even media. Therefore, I need every seller to call their local news affiliates and let them know what their state is doing. If there is one thing I know about local news is that they love these stories, but I need your help in getting the message out to them. And, if you do get in contact, feel free to refer them to me, I’m willing to talk to anyone to get the word out ([email protected]). We need to make it known everywhere that states are choosing to ultimately crush 800,000 businesses in order to curry favor with Amazon.
Chris is willing to contact more media as well as he is in regular contact with most national media outlets. We’re both staying in the loop on this while the deadline creeps closer with each passing day. We may not have relationships with reporters where they will write up a story and publish it on our say-so, but we have more people contacting us and upset over this than we have on any other single issue. Let’s use that by being vocal and expressing it to as many of them as we can!
Nobody can help us if we are all sitting alone in the dark suffering. A victory is absolutely possible if we can make the most of our strengths. There is still a lot you can do to fight back, and a variety of ways to support this cause.
Please, do your part to help us raise awareness! If we all do our part then I know we can win. And the sooner we can learn to be loud, the sooner we will achieve that victory. Call your politicians and your local news media outlets today!
Upcoming Webinar
I’m so excited to announce that on Thursday at 2pm EST, I will be part of a webinar with Sellerlabs featuring Chris McCabe of ecommerceChris, myself and one of the country’s best state tax attorneys, Jordan Goodman.
I can’t tell you how excited I am to introduce him to everyone in the Marketplace Community. I know that you are going to really enjoy listening to him speak.
Jordan’s had an amazing 30+ year career including his involvement with monumental Supreme Court cases involving state tax, and a quote my former Chief of State Tax Controversy Counsel when I was at GE discussing a case we had worked on together, and what it was like to see Jordan in action.
I look forward to seeing all of you on Thursday.
Disclaimer: Unless we have a signed engagement letter the advice given in this document is for educational purposes, and may not be construed as legal, tax, or any specific advice directed at you or your business. If you are unsure about any of the topics discussed in this newsletter/blog post, please talk to a state tax lawyer, emphasis on lawyer, not someone who is really good at filling out forms. I don’t care if you talk to me or not, just be sure they are qualified multistate tax lawyers.
Paul Rafelson
State Tax Attorney
Paul Rafelson has over 12 years of experience in handling State and Local Tax Matters. As a former State Tax Counsel for General Electric Company in Stamford, CT Paul was responsible for state income and franchise tax audits, appeals and litigation. Prior to GE, Paul held similar roles at Wal-Mart Stores, Inc. in Bentonville, AR and at Microsoft Corporation in Redmond, WA. Paul is also an adjunct professor at Pace Law School where he teaches State and Local Tax Law.