United States: Sales And Use Tax Amnesty Program v. Voluntary Disclosure Program

As we await the Supreme Court's decision in South Dakota v. Wayfair, a decision that could change the current landscape of sales and use tax collection and reporting, some states continue with their normal course of business. This includes the introduction of new amnesty programs or the continuation of well-established Voluntary Disclosure Programs ("VDPs"). Both programs provide an opportunity for companies with prior period tax exposures, including sales and use tax, to come forward voluntarily so they can be compliant with current statutes.   

Amnesty Programs

State tax amnesty programs are an opportunity for states to potentially increase revenue, as well as establish the foundation for increased future compliance for taxpayers who voluntarily come forward. Amnesty programs are formal programs that states usually offer infrequently and for a limited period of time. Whether it is Connecticut's "Fresh Start" amnesty program or Texas' "No Excuses Necessary" amnesty program, it is clear these states are eager to raise revenue and provide a clear path for taxpayers to get in compliance.  

In general, amnesty programs offer relief from penalties and/or interest, and on rare occasion, forgiveness of uncollected tax all together. In return, a company is required to register and pay taxes for prior period exposures. In some instances, the "look back" period may be limited to the state's statute of limitations, which is typically three or four years. The programs are generally available to registered and unregistered taxpayers. However, it is important to read the fine print, as all amnesty programs are not created equal –  not all programs offer limitations on how far they will look back.  

Below is a list of current and upcoming amnesty programs being offered. Other states (e.g., New Jersey) have proposed creating an amnesty program in the near future. Due to the generally short nature of these programs, when one is offered, you should review your activity in that state to see if there are any tax surprises, such as an online distributor moving your inventory into the state or the company hiring an employee in that state without letting you know. 

State

Status 

Amnesty Filing Dates 

Amnesty Inclusion Periods 

Tax Types and Conditions 

Amnesty Benefits 

Connecticut 

Active 

October 31, 2017 - November 30, 2018 

Taxes due on or before December 31, 2016.  Limited look-back period of 3 years. 

Most taxes (including state corporate income and sales and use taxes).  

Waiver of 100% penalties and 50% interest.  

Tennessee 

Active 

No ending date provided 

All periods prior to date of amnesty application. 

Business Sales and Seller's Use Tax under SSTP Program if register under SSTP. 

Waiver of all uncollected tax, penalty and interest. 

Texas 

Active 

May 1, 2018 - June 29, 2018 

Periods prior to January 1, 2018.  There is no limited lookback period noted in the program. 

Applies to all state and local taxes and fees the Comptroller's office administers except PUC gross receipts. Does not apply to periods currently under audit review or local motor vehicle tax, IFTA taxes and Unclaimed Property. 

Waiver of penalties and interest.  

Alabama 

Upcoming 

July 1, 2018 - September 30, 2018 

Taxes due prior to January 1, 2017 and taxes for taxable periods that began before January 1, 2017.  Limited look-back of 3 full years or 36 months. 

All taxes administered by the Alabama Department of Revenue except for motor fuel, motor vehicle, and property taxes.  Once accepted into amnesty program, tax returns and full payment due Nov. 15, 2018. 

Waiver of 100% penalties and interest with exceptions for noncompliance and providing false/fraudulent information. 

                                           

Voluntary Disclosure Programs

Voluntary Disclosure Programs (VDPs) typically offer similar protections and responsibilities as amnesty programs. Most VDPs are formal state programs with the benefits and responsibilities clearly defined, while some are negotiated on a case-by-case basis. Some states do not have a formal program in place, but an agreement can always be negotiated. As with amnesty programs, it is imperative to understand the terms of each VDP.  

For example, Texas currently has ongoing amnesty and VDP programs. Under the amnesty program, interest and penalties are waived on taxes that were not collected from customers. As noted above, the program applies to periods before January 1, 2018, but does not specify a limitation to the look back period. Whereas the Texas VDP offers the same relief for sales and use tax as the amnesty program, but limits the lookback period of uncollected taxes to four years. When faced with the panic brought on by a potential outstanding tax liability, understanding the available methods of mitigating the risk is imperative.

A company should look at its particular facts and circumstances in a state before it decides whether to participate in a state program. To find the best option and ensure a company's anonymity when applying for the appropriate program, it is suggested that they work with a trusted third-party advisor. One thing is certain: if a company is contacted by the state prior to it applying for an amnesty or voluntary disclosure program, it will not receive any of the benefits afforded by these programs. Remaining in the dark about potential exposure, or ignoring it once it is discovered, can be very costly.

Typical state penalties can range between 5%-25% for failure to file, and 5%-25% for failure to pay.

There are steps that must be taken to apply and qualify for protection under state amnesty programs and VDPs. The Duff & Phelps Sales and Use Tax Services team can help you quantify the costs, benefits and pitfalls associated with this sometimes-arduous process. For more information on identifying risk and how to best mitigate it, please contact our sales and use tax experts.

Footnotes

1 Texas L. 2017 § 17.11 Tax Amnesty

2Texas Publication 96-576 (03/2007)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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