The dawn of a new year signals a time to begin anew and leave behind the cares and bad habits of the previous year. In the state tax arena, the opportunity for a fresh start goes beyond New Year’s resolutions. Many states offer voluntary compliance programs aimed at providing favorable treatment to taxpayers that voluntarily disclose the nonpayment or underpayment of sales or use tax obligations.
Participating in a voluntary disclosure program could be an alternative that offers a proactive way for a taxpayer to resolve problems such as inadvertently triggering nexus in a state or failing to collect the correct amount of tax in a jurisdiction.
But voluntary disclosure should be weighed against other options, such as participating in an amnesty program if one is available.
Benefits to Taxpayers for Participation in Voluntary Disclosure
Whether the nonpayment of taxes is because of lack of information about state tax laws, or deliberate avoidance of payment, taxpayers who voluntarily disclose nonpayment or underpayment of their taxes may generally be offered favorable terms to repay back taxes due. While the taxpayer must pay the total taxes and interest due for a period determined by the voluntary disclosure agreement that it enters into with the state revenue department, the taxpayer will benefit by not having a penalty imposed, receiving a limited look-back period, and by not having to fear discovery through the state's normal investigative or audit procedures.
To qualify for most states’ voluntary compliance programs, taxpayers must:
• have had no previous contacts with the state’s revenue department regarding voluntary disclosure;
• not be registered for the tax type involved in the disclosure;
• not currently be under audit regarding a tax covered by the agreement; and
• not currently be the subject of a civil action or a criminal prosecution involving any taxes covered by the agreement.
Multistate Tax Commission Voluntary Disclosure Program
In addition, 44 states participate in the Multistate Tax Commission voluntary disclosure program . A taxpayer that volunteers to register and file with Program Member States may remain anonymous throughout the negotiation and agreement process. However, the taxpayer will be disclosed after the states have executed the agreement and the taxpayer has returned the executed agreement and the taxpayer registration forms to the Program office.
Amnesty versus Voluntary Disclosure
Tax amnesty programs are generally limited to a 30- or 45-day period, during which taxpayers—who may be companies, organizations or individuals—must fill out an application and make payments, said Kenton M. Bowles , owner of Blue Horizon Tax Consulting, in an interview with Bloomberg BNA . The look-back period is also much longer.
Voluntary disclosure programs usually limit the lookback to three or four years, but amnesties historically have looked back as far as a company has done business in a jurisdiction. Another difference is that, while penalties are typically abated in both programs, under a voluntary disclosure agreement (VDA), interest is not.
Ohio is offering amnesty on payments of delinquent consumer use tax until May 13, 2013 . Ohio, Tennessee , and Utah are offering amnesty to sellers to voluntarily participate in the Streamlined Sales and Use Tax program. These programs gave taxpayers another chance to pay taxes they owed, with reduced or no interest, and without having to pay penalties.
For additional information on state sales and use tax voluntary disclosure programs, see Bloomberg BNA’s Sales and Use Tax Navigator at 10.16.
By Nancy Emison
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