Pennsylvania Voluntary Compliance Program Update
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
We previously relayed what the state told us when we asked them why some sellers who are already registered, were actually getting letters, and what the state told us was a clerical error. Just to send back the questionnaire with the sales tax number, you didn't have to fill out the rest of it, and when the person working on your case got that information, they would just mark it as closed.
Well, we started scratching our heads and, it didn't actually sit very well with us. It didn't sound correct. So, we pressed further when we went further up the line and we received additional verification, and here's what the real story is…
Here’s a glimpse of what you’ll learn:
Pennsylvania Voluntary Compliance Program Update
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Episode Transcript - Audio Version
[0:10] Intro: Welcome to Sales Tax and More. Your go-to resource for all things state tax-related. Now, here is your host Michael Fleming.
[0:26] Mike: Hello everyone! Mike Fleming here, founder of Sales Tax and More, and today's co-host of the Sales Tax and More podcast where we talk about everyone's favorite topic, which is of course sales tax. Today my co-host and I are going to be revisiting a topic about the Pennsylvania special inventory compliance program. We've done a previous podcast about this before, but we've got some updated information and want to discuss that today. Before we do though, let me introduce you to my co-host, Ellie Moffat.
[1:02] Ellie: Hey Mike! Great to be here. My favorite topic is of course sales tax. Before we get started, I want to do a quick introduction for Sales Tax and More. Sales Tax and More is a full-service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs. We do a lot of sales tax returns, sales tax registration, consulting, research, and like our name states more. If you have questions about our services, please reach out and ask. We'd love to work with you and we can get your questions answered about our services. So, Mike, we recently did a podcast, as you mentioned about the Pennsylvania special voluntary compliance program, which is so easy to say, could say it 10 times fast. Do we have an update?
[2:01] Mike: Very much so Ellie and we previously relayed what the state told us when we asked them why some sellers who are already registered, were actually getting letters, and what the state told us was a clerical error. Just to send back the questionnaire with the sales tax number, you didn't have to fill out the rest of it, and when the person working on your case got that information, they would just mark it as closed. Well, I started scratching my head and, you know it didn't actually sit very well with me. It didn't sound correct. So, we pressed further when we went further up the line and we received additional verification, and here's what the real story is. If you're already filing sales and income tax returns then that was the correct answer. However, many of the people who were getting this letter of filing sales tax returns only. They're not filing the income tax return. So if you're only filing sales tax returns, the state wants you to start filing the income tax returns. And yes, this program is for you, even if you're already registered for the sales tax, you can use it for the income tax piece. That's the update, Ellie.
[3:34] Ellie: I'm really glad that we can get this update out to everyone. So I just want to make sure we have clarification around this Mike. This program can be used to reduce the income tax exposure even if someone is registered and filing sales tax returns.
[3:53] Mike: Yeah, absolutely Ellie, not only can it be used per the Pennsylvania DOR, but it really needs to be used because once again, Pennsylvania is telling you that they know who you are. They're telling you that they believe inventory creates nexus for income tax. They're telling you that public law 86-272 does not apply. So you don't have any protections and they want you to take advantage of this. So it's a pretty good program. It only goes back to January 1st of 2019. So on an income tax basis, you have to worry about 2019. Penalties getting waived. There's not very much interest in just the one year there. 2020, depending on what type of entity you are and how you file that return may not even be due yet or was just due. So, really not a whole lot of exposure. You are really doing one back return, one current return when it comes to income tax. Yes, I know that no one wants to have another state to file income tax on, but you have to remember if you're in a state with an income tax, any tax that you pay to the state of Pennsylvania, you're not paying tax on it twice. You're taking your credit forwards. It's not being included in your numbers for the home states. So I really do think that if you got one of these letters, that you go ahead and take advantage of this program. Even if you didn't get a letter, if you have inventory in the state of Pennsylvania, you have to remember, Pennsylvania is under no obligation to tell you that they know who you are. They're being nice about that. They can just come after you and come after you hard. It's sort of like playing Russian roulette here. I mean, if you've got inventory there, please take advantage of this program. Protect yourself. Don't let the state come after you. They're telling you we're coming after you. They're telling you, Hey, we take this very seriously. Please take it as seriously as the state is taking it.
[6:11] Ellie: Thank you so much for that clarification, Mike. You know, not everyone may have listened to that previous episode. Can we do a quick rundown of what's going on?
[6:23] Mike: Yeah, real quick. Pennsylvania, like the majority of states out there, believes that when you have inventory in their state, that creates enough of a link or connection. We call this link or connection nexus, and that they can then require you to either collect their sales tax or pay their income tax. So if you have inventory in Pennsylvania, you know, even though it may be in an Amazon warehouse, you still own inventory in their state. Even though Amazon's collecting the sales tax. You still have been nexus from the inventory. That's what Pennsylvania is telling you. And they use a carrot and stick method. They say, Hey, we got this great program. It's going to save you a lot of money. We want everyone to step forward voluntarily. By the way, we're sending out letters to certain people saying, we know who you are. Please take advantage of this program. That's the carrot. They're trying to be semi-nice guys. Nice as a state can be in this situation with a two-year look back. That's much better than the normal look back, which is three-plus years. Three years, plus the current year for sales tax. It's five years plus the current year for income tax. This program, it's really a great program out there when you compare it to what's normally available. So that's the carrot. They came out with this special program. They're saying, please take advantage of it. The stick is, that letter, it says, we know who you are and while they're not explicitly coming out and saying, we're coming after you, that's what they're implicitly saying. They're saying we know who you are and if you don't take advantage of this program, we're going to make your life miserable. You know, if you don't take care of the program, the state can go back in theory to the first date that your nexus began. You know, so whether that's ten years ago when the first Amazon warehouse opened, they, in theory, could do that. In reality, most states go back seven, eight years or so. I believe Pennsylvania is seven years. So they'd normally go back seven years. You're saving a heck of a lot of money just going back to the two years. So, that is the gist of this program. That's why Pennsylvania is sending this letter. They obviously need to refill their coffers and the income tax is going to be something that they use to refill the coffers. They're not going to be the only state to do it. We've already seen California doing this and we expect a lot more states over the next 18 months to be using income tax to raise additional revenues.
[9:16] Ellie: All right. So Mike, what are the parameters of the program again?
[9:22] Mike: It’s a relatively short duration. It was offered for 90 days, starting on February 8th and ending on May 8th. It's got a very favorable look back. As I mentioned, it's two years, two-plus years, you know, two years plus the current year. So it goes back to January of 2019. When we say it goes back, what they're doing is waving everything prior to January 1st, 2019, all of the tax, all of the penalty, all of the interest. So that's pretty darn good. As I mentioned, you compare that to a normal VDA. It's a huge saving over normal VDA, for that two-plus years, the penalty is being waived and this can be used for sales tax and the income tax, or it could be used just for sales tax or just for income tax. You know, it depends on what you're currently registered for and filing. What it can't be used for, if you're already registered for sales tax, but you just registered recently, this is only for sellers who are not registered for this specific type of tax that they want to include in this program. If you're not registered for sales tax, you can include it. If you're not registered for income tax, you can include it, and if you're registered for sales tax, but not for income tax, you can include the income tax. You just can't include the sales tax.
[10:56] Ellie: All right, anything else you want to add in here?
[11:00] Mike: I've said this before, but I strongly suggested everyone take advantage of this program, especially those who got the letter from PA, Pennsylvania is telegraphing that they plan on becoming aggressive. If you got the letter they're telling you, they know who you are and that they plan on coming after you. So to me, there's entirely too much risk in not following through with this program and not enough rewards. What reward are you going to get? Sure. You don't have to pay the tax back to 2019. You don't have to pay income tax back to 2019. However, you don't take advantage of it. The state could be going back all the way to 2010. So too much risk, not enough reward. I want to reemphasize, if you did not get a letter, sometimes the letters go to the wrong address. Maybe they do know who you are and you are just not aware of it or the state's under no obligation to tell you that they know who you are. They don't have to say we plan on coming after you, once this program is over. So if you have inventory in Pennsylvania and your exposure is material, I strongly urge you to take advantage of this program because this is just the second state to start doing this. I think there are a lot more states out there that are going to be coming forward. Income tax, I've been saying this is going to be the next big battle. Not only for FBA sellers but for all e-commerce sellers.
[12:45] Ellie: Thank you so much for the update, Mike, and for catching us back up. For additional information, I highly suggest you listen to that first podcast episode. We will be linking that in the show notes. You can also just find it on any of the platforms you listen to us on. You can also find more information about our services at salestaxandmore.com. If you'd like to work with us, or you have a question about our services, please reach out to me directly at emoffat@salestaxandmore.com. We do have a lot of great resources on our websites. We do an entire series of webinars. We have a lot of valuable information and we offer paid resources as well. So anything else you want to add in here, Mike?
[13:39] Mike: Two quick things. Number one. I want to thank everyone for joining us today. We look forward to seeing you on our next episode of the Sales Tax and More podcast. Also, I want to solicit topics for the podcast. If there's something out there that you think you would really like to hear us discuss, please submit it. Let us know what you'd, what you like to hear about. We'll make one of our topics in a future episode. Other than that, take care, have a wonderful day and see you soon.
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