Inevitably, every taxpayer discovers an amount of unpaid state tax liability at some point in time. Even if a state does not have a current amnesty program in place, taxpayers can avoid paying most if not all related penalties and receive other benefits by coming forward to the state through its Voluntary Disclosure Agreement (VDA) program.
Generally, a VDA with a state jurisdiction is a written agreement between a state and a taxpayer that typically provides benefits including the ability to come forward on an anonymous basis, full penalty abatement, a limited lookback period as well as the ability to submit a schedule instead of actual returns for the prior periods.
“It is incumbent upon the taxpayer to fully understand each state’s requirements and terms of eligibility prior to entering into a VDA.”
VDA ELIGIBILITY
Although most state VDA programs require that the state must not have contacted the taxpayer about the unpaid liability and the amount must not have been determined, calculated, researched, identified by or known to the state, each state has its own requirements.
For example, in Louisiana taxpayers qualify for a VDA if they made an error in the mathematical calculation of tax due, incorrectly interpreted the law, or incorrectly reported the tax due on the return. Additionally, Louisiana considers VDA applications that resulted from a merger or acquisition of a company that failed to properly report and pay sales tax.
e-commerce sector company exposure
Although taxpayers in all industries potentially have unreported sales and use tax liabilities and may be eligible for a VDA, in the years following the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, remote sellers in the e-commerce sector appear to have more sales tax exposure than others.
As a result of Wayfair, each state needed to define “economic nexus” and its relevant revenue and transaction thresholds for sales and use tax purposes. Companies were forced to review such thresholds as applied to their monthly sales data and, as anticipated, once both enterprise level and smaller companies began navigating their way through the concept of economic nexus, some sales and use tax liabilities went undetected.
call to action
Because each state has different eligibility requirements for Voluntary Disclosure Agreements, it is incumbent upon the taxpayer to fully understand each state’s requirements and terms of eligibility prior to entering into a VDA. Libertas has decades of experience with VDAs and is best situated and prepared to assist you as you navigate the terms, conditions and requirements of a VDA. If you believe your company may be eligible for a VDA, do not hesitate to reach out.