Voluntary Disclosure | Sales Tax Disclosure

Описание: In this video, Interstate Tax Strategies of Atlanta, GA (770-985-9573) discusses the significant tax reduction strategies available through the voluntary disclosure agreement process and why companies must resolve tax issues before they are contacted by the state.

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This video outlines one of the best techniques for resolving most types of state tax liabilities. This technique is called a Voluntary Disclosure Agreement or VDA. Every state has some type of VDA program but each one has different terms and conditions which must be understood before you begin the process. Companies of all sizes make mistakes when it comes to the collection and remittance of sales tax or the payment of corporate income tax. In many cases the discrepancies are small and can be resolved on the next tax return that’s filed. Where the liability is significant or where it goes back several years, the solutions for resolving the problems are more complicated. When interest and penalties and added to the back tax, the exposure can put a business in serious financial peril if an audit were to occur. In these situations the VDA may be the best way to resolve these issues.

A Voluntary Disclosure Agreement is a contract entered into proactively with a taxing authority. Under the contract the taxpayer agrees to pay the delinquent tax and interest for some limited period of time. In exchange for the taxpayer coming forward voluntarily, the tax authority agrees to waive the remaining tax and certain penalties on the tax that is paid. The key to effective voluntary disclosures is the term, “voluntary.” In every agreement I facilitated the tax-payer must make an affirmative statement that they have not been contacted by the state about the specific tax being disclosed. If the state has contacted your business directly then pursuing a traditional Voluntary Disclosure Agreement will be very difficult to achieve. There are some exceptions but usually once you’ve been contacted, a traditional VDA is not possible. The voluntary disclosure rules vary by state but in general they all have three benefits. First, a limited look-back period for the taxes owed. This is normally three to four years. Taxes prior to those years are forgiven. If the tax has been collected and not remitted there is no limitation on how far back the state will go. Second, a full abatement of the penalties otherwise due on the taxes paid.
Because penalties can be 25% or more of the tax due, this can be a significant savings. Some states even abate the interest that is due on the taxes paid under a VDA. Many states will impose a small penalty if the tax has been collected but not remitted but that’s not always the case. Third, the taxpayer is allowed to conduct a self-audit to determine the amount of tax that’s due.
Voluntary Disclosure Agreements are normally used for companies that are not registered for either sales or income tax. Many states will also allow VDAs for businesses that are currently registered for taxes but realize that they have a liability that needs to be resolved and want to minimize the penalties that may be imposed. The process for registered businesses will vary by state. For unregistered businesses there is generally no statute of limitation on how far back a state can audit for back taxes. For companies with many years of unfiled taxes or where the documentation for sales transactions is missing, the VDA is one of the best ways to eliminate the historic liability and to get a clean start with your sales tax compliance. Most states also let taxpayers remain anonymous while they pursue the voluntary disclosure and allow them to use an independent representative such as a CPA or an attorney to handle the process. It’s not until the agreement is executed that they taxpayer’s identification is revealed.

The VDA program offered by states and by some cities allows taxpayers to contractually limit the look-back period to get a full or partial abatement of penalties due on the taxes paid and to conduct a self-audit to determine the amount of taxes owed. The key to an effective VDA is to be proactive and to contact the states before they contact you. If your company believes it has any type of state tax liability that could be resolved by using the VDA or if you have any questions about whether the VDA program would benefit your company, please contact me through my website: salestaxstrategies.com. I’m happy to provide a no-cost evaluation about your situation and outline the ways I can help you.

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