Avalara : Pennsylvania offers limited amnesty to unregistered remote sellers with inventory in the commonwealth

It's common for a business selling through an online marketplace to have inventory in more than one state. Marketplace facilitators like Amazon often have warehouses and fulfillment centers across the country, and third-party sellers often use the fulfillment services offered by marketplaces (e.g., Fulfillment by Amazon, or FBA) to cut down on delivery times.

Pennsylvania is one of several states actively pursuing out-of-state third-party sellers for back tax liability created by their marketplace inventory. Other such states include California, Massachusetts, Washington, and Wisconsin. This isn't a new thing: The Wisconsin Department of Revenue announced in 2014 that sellers using distribution facilities in Wisconsin were liable for Wisconsin taxes on their sales.

Nonetheless, many marketplace sellers have fought - and are fighting - these assessments. They argue that they don't control their inventory after they ship it to a marketplace facilitator, and often don't even know the location of their inventory. Thus, they believe the marketplace facilitator, not them, should be liable for any tax obligations the inventory creates.

State tax authorities typically take a different stance, that taxpayers are under an obligation to know the tax laws in states where they do business and comply with them. In 2018, the Washington Department of Revenue held that 'a taxpayer's misunderstanding or lack of knowledge of its tax liability are not circumstances beyond its control, and do not allow waiver or cancellation of delinquent penalties or interest.'

The California Department of Tax and Fee Administration has reached similar conclusions in its aggressive pursuit of back tax liability established by inventory stored in marketplace-owned or operated facilities.