September 8, 2010, 4:20 PM

Sales tax amnesty falls flat

Only 27 online retailers took up North Carolina's offer to forgive uncollected taxes.

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Only 6% of invited online retailers have taken up North Carolina on its offer to forgive uncollected sales taxes in exchange for a promise to remit taxes later.

The state offered the amnesty program to 450 merchants, but only 27 signed up by the Aug. 31 deadline, says a spokeswoman for the North Carolina Department of Revenue.

Retailers who signed up do not have to worry about the state trying to collect sales taxes, penalties or interest for online purchases made by North Carolina residents prior to Sept. 1. The retailers taking part in the amnesty, however, must collect and remit sales taxes to the state for a four-year period that began on Sept. 1. The state did not say what will happen after the four years are up. The state did not identify the retailers that signed up for amnesty.

The amnesty deal—officially called the Internet Transactions Resolution Program—was offered to online retailers that do business with North Carolina online affiliates but had not registered with the state to collect and remit sales and use taxes.

Like New York and some other states, North Carolina has enacted a tax law—often referred to as the “Amazon Tax” because of the effect such laws could have on Inc.—that requires Internet retailers with in-state online affiliate relationships to collect and remit sales tax on all purchases by in-state customers. The state law says that doing business with affiliates establishes for the retailer an in-state physical presence that, under federal law, authorizes the state to collect sales taxes on online sales by that retailer.

The state, like many others, requires consumers to remit use taxes whenever retailers fail to collect sales tax on taxable transactions, but few consumers pay up. The state has also agreed under the amnesty program not to exercise its authority to obtain from retailers information on consumers who may owe use taxes on transactions prior to Sept. 1.

For retailers subject to sales tax filing requirements but which did not participate in the amnesty program, the state revenue department will assess all applicable tax, penalties and interest for past transactions. North Carolina has no statute of limitations for sales tax liability for any retailer that has never registered and filed sales tax returns, the department says.

The state hoped the amnesty program would increase participation in a sales tax program that, state officials say, is designed to provide a level playing field among all retailers regarding tax liabilities.

“The Department of Revenue continues to see the issue as one of fairness for small businesses, bricks-and-mortar operations, who are at a competitive disadvantage when they have to collect sales tax that other businesses do not,” the spokeswoman says. “The department is committed to fairness and uniformly collecting taxes due the state from all retailers.”


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