Iowa Joins in Special Voluntary Disclosure Initiative for Online Sellers

September 13, 2017

By: K. Dwayne Vande Krol

In 1992, the U.S. Supreme Court held in Quill Corp. v. North Dakota that the Commerce Clause of the U.S. Constitution requires a retailer to have a physical presence in a state before the State can require the retailer to collect its sales or use taxes.


In the 25 years since the Quill decision, the Internet and other technological advances have greatly changed the way retailers do business, often negating the need for a retailer to be physically present in a state in order to sell and deliver its goods and/or services to customers in that state. As a result of this lack of physical presence, many online and other remote sellers have claimed that they have no responsibility to collect state sales or use taxes. Due to the relatively low level of individual purchasers that self-assess and remit tax on purchases made over the Internet, States have experienced revenue shortfalls related to sales by online sellers.

In response to the absence of sales or use tax payments on online sales, State taxing authorities have taken various approaches to impose a sales tax collection liability on remote sellers with no direct physical in their state.  These approaches include the following:

  • Affiliate Nexus. State taxing authorities have asserted that the in-state activities of an affiliate of an out-of-state retailer are sufficient to create a substantial nexus between the State and the out-of-state retailer. See, e.g., New Mexico Taxation and Revenue Department v. LLC, New Mexico Supreme Court No. 33,627 (6/3/2013) (activities such as promotion and use of gift cards, sharing of customer data, a shared loyalty program and return policy, and in-state use of logos and trademarks sufficient to create sales tax nexus).
  • “Click-Through” Nexus (i.e., “Amazon Laws”). Several States have enacted statutes defining an out-of-state business as having nexus if the business receives sales referred by another business that is located in the state.  See, e.g., New York State Tax Code Sec. 1101(b)(8) (sellers with over $10,000 of sales to New York customers made via referrals in the prior four quarters are required to collect tax if, per an agreement, they compensate New York residents for directly or indirectly referring potential customers through a website or other means).
  • Economic Nexus. A number of States have enacted statutes instituting an “economic nexus” standard that imposes a sales collection responsibility on remote sellers with a certain level of revenue and/or transactions with purchasers in the state. See, e.g. South Dakota Codified Laws Ch. 10-64 (requires sales tax collection and remittance for any entity exceeding an annual sales threshold of $100,000 or 200 separate transactions in South Dakota. However, this statute was held to be unconstitutional by the South Dakota Sixth Judicial Circuit Court in South Dakota v. Wayfair. Inc., et al, S.D. Cir. Ct., No. 32 Civ. 16-000092 (3/6/17). The case is currently on appeal to the South Dakota Supreme Court.)
  • Voluntary Collection Agreements. In return for full or partial abatement of any taxes owed for prior periods, a number of remote sellers have voluntarily agreed with certain States to begin collecting sales and use taxes prospectively. This was the approach taken by the Iowa Department of Revenue in an agreement with Amazon pursuant to which Amazon began collecting Iowa sales tax on sales to Iowa customers made on or after January 1, 2017. 


As an extension of the voluntary agreement approach, the Multistate Tax Commission (MTC) is offering a special, limited-time voluntary disclosure initiative for online marketplace sellers in participating states, including Iowa. The relief provided under the initiative is available for sales and use tax, income and franchise tax, or both. Applications to participate in the MTC’s new initiative must be filed by October 17, 2017. 


Per the MTC’s published guidance, taxpayers must generally meet the following criteria to be eligible for this special voluntary disclosure initiative:

  • The taxpayer has not yet registered with the State taxing authority, filed returns or made payments for the tax type for which the taxpayer is seeking voluntary disclosure relief, or had any other prior contact with the State concerning potential liability for such taxes.
  • The taxpayer is an online marketplace seller using a marketplace provider/facilitator (such as the Amazon FBA program or similar platform or program) to facilitate retail sales into the state.
  • The taxpayer has no location, property, employees, or agents in the state except for the online marketplace seller’s inventory stored in a third-party warehouse or fulfillment center located in the state.
  • The taxpayer timely applies with the MTC’s staff for participation in the Voluntary Disclosure Program using either the online application or PDF application form. 


Under the MTC’s special voluntary disclosure initiative for online sellers, Iowa and other participating states will agree to waive sales and use tax and income and franchise tax liability, including penalties and interest, for all prior tax periods in return for the taxpayer’s agreement to register and begin collecting, reporting, and remitting sales and use tax as of the effective date of the voluntary disclosure agreement (but not later than December 1, 2017). If the taxpayer is subject to income or franchise tax, the taxpayer must also agree to begin filing income and franchise tax returns and paying tax due beginning with the tax year that includes the effective date of the voluntary disclosure agreement.

Additional information regarding MTC’s special voluntary disclosure initiative for online sellers can be found at

Please contact Bruce Baker or Dwayne Vande Krol with questions regarding your company’s Iowa tax filing responsibilities, including potential participation in the MTC’s new voluntary disclosure initiative.

UPDATE:  On September 13, 2017, the South Dakota Supreme Court upheld the decision of the State’s Sixth Judicial Circuit Court, ruling that the South Dakota law that relies on the concept of “economic nexus” to impose a sales tax collection obligation on sellers that do not have a physical presence in the state runs afoul of the requirements established by the U.S. Supreme Court in Quill v. North Dakota.  See South Dakota v. Wayfair, 2017 S.D. 56, S.D. Supreme Ct. (9/13/17). The State is expected to appeal the decision to the U.S. Supreme Court.