
Multistate voluntary disclosure programs provide an opportunity for businesses and individuals with unresolved state tax obligations to voluntarily submit past-due information and clear overdue tax debts. In return for coming forward voluntarily, taxpayers can receive valuable financial benefits and avoid risks of further liability. The attorneys within Hodgson Russ’s multistate voluntary disclosure practice strategically navigate the voluntary disclosure landscape in order to ensure that taxpayers efficiently resolve their outstanding tax liabilities.
Eligibility
To qualify for a Voluntary Disclosure Agreement (“VDA”), taxpayers generally cannot be under audit or have been contacted previously by the state’s tax department regarding the taxes they hope to disclose. Registered taxpayers may still be eligible for a VDA in certain states, while even ineligible taxpayers may qualify for other special accommodations. Anonymous applications provide opportunities to confirm eligibility.
State |
Anonymous Application? |
Registered Taxpayers Eligible for Voluntary Disclosure? |
State |
Anonymous Application? |
Registered Taxpayers Eligible for Voluntary Disclosure? |
|
Alabama |
Yes |
No |
Montana |
Yes |
Yes |
|
Alaska |
Yes |
No |
Nebraska |
Yes |
No |
|
Arizona |
Yes |
Yes |
Nevada |
No |
No |
|
Arkansas |
Yes |
Yes |
New Hampshire |
Yes |
Yes |
|
California |
Yes* (*Eligibility opinion letter for out-of-state applicants) |
No |
New Jersey |
Yes |
No |
|
Colorado |
Yes |
Yes |
New Mexico |
No* (*Managed Audit Program) |
Yes |
|
Connecticut |
Yes |
Yes |
New York |
No |
Yes |
|
Delaware |
Yes |
N/A |
North Carolina |
Yes |
No |
|
Florida |
Yes |
Yes |
North Dakota |
Yes |
No |
|
Georgia |
Yes |
Yes |
Ohio |
Yes |
Yes |
|
Hawaii |
Yes* (*Subject to Audit) |
Yes |
Oklahoma |
Yes |
No |
|
Idaho |
Yes |
Yes |
Oregon |
Yes |
Yes |
|
Illinois |
Yes |
Yes |
Pennsylvania |
Yes |
No |
|
Indiana |
Yes |
No |
Rhode Island |
Yes |
No |
|
Iowa |
Yes |
Yes |
South Carolina |
Yes |
No |
|
Kansas |
Yes |
Yes |
South Dakota |
Yes |
No |
|
Kentucky |
Yes |
Yes |
Tennessee |
Yes |
No |
|
Louisiana |
Yes |
Yes |
Texas |
Yes |
Yes |
|
Maine |
Yes |
Yes |
Utah |
Yes |
Yes |
|
Maryland |
Yes |
Yes |
Vermont |
Yes |
Yes |
|
Massachusetts |
Yes |
No |
Virginia |
Yes |
Yes* (*case-by-case basis) |
|
Michigan |
Yes |
No* (*Taxpayer-Initiated Disclosure) |
Washington |
Yes |
No |
|
Minnesota |
Yes |
No |
West Virginia |
Yes |
No |
|
Mississippi |
Yes |
No |
|
Wisconsin |
Yes |
No |
Missouri |
Yes |
No |
|
Wyoming |
Yes |
No |
Benefits
If taxpayers chose to voluntarily come forward, they have the opportunity to gain multiple benefits. Benefits can include:
- Civil-penalty waiver (including possible penalty waiver in cases of collected but unremitted sales and use tax)
- No criminal prosecution
- Limited lookback that can eliminate historic tax debts
- Full Compliance
State |
Standard VDA Lookback |
Penalty Abatement Available for Collected Tax? |
State |
Standard VDA Lookback |
Penalty Abatement Available for Collected Tax? |
|
Alabama |
3 years (or 36 months) |
Yes (extended lookback) |
Montana |
5 years |
N/A |
|
Alaska |
5 years |
N/A |
Nebraska |
3 years (or 36 months) |
Yes (extended lookback) |
|
Arizona |
4 years (or 48 months) |
Yes (extended lookback) |
Nevada |
8 years |
Yes (extended lookback) |
|
Arkansas |
3 years (or 36 months) |
Case-by-case (extended lookback) |
New Hampshire |
3 years (or 36 months) |
N/A |
|
California |
3 years (or 36 months) |
Case-by-case (extended lookback) |
New Jersey |
4 years (or 48 months) |
No* (*Reduced penalty) |
|
Colorado |
3 years (or 36 months) |
No* (*Reduced Penalty) |
New Mexico |
N/A* (*Managed Audit Program) |
Case-by-case (extended lookback) |
|
Connecticut |
3 years (or 36 months) |
Yes (extended lookback) |
New York |
3 years (or 36 months) |
Yes (extended lookback) |
|
D.C. |
3 years (or 36 months) |
Yes (extended lookback) |
North Carolina |
3 years (or 36 months) |
No* (*Reduced penalty) |
|
Delaware |
5 years |
N/A |
North Dakota |
3 years (or 36 months) |
Yes (extended lookback) |
|
Florida |
3 years (or 36 months) |
No* (*Reduced Penalty) |
Ohio |
3 years (or 36 months) |
No* (*Reduced penalty) |
|
Georgia |
3 years (or 36 months) |
Yes (extended lookback) |
Oklahoma |
3 years (or 36 months) |
Yes (extended lookback) |
|
Hawaii |
10 years |
Case-by-case (extended lookback) |
Oregon |
3 years (or 36 months) |
N/A |
|
Idaho |
3 years (or 36 months) |
Yes (extended lookback) |
Pennsylvania |
3 years (plus current) |
Yes (extended lookback) |
|
Illinois |
4 years (or 48 months) |
Yes (extended lookback) |
Rhode Island |
3 years (or 36 months) |
Yes (extended lookback) |
|
Indiana |
3 years (or 36 months) |
Case-by-case (extended lookback) |
South Carolina |
3 years (or 36 months) |
Yes (extended lookback) |
|
Iowa |
5 years (or 50% of exposure period) |
Yes (extended lookback) |
South Dakota |
3 years (or 36 months) |
No* (*ineligible if tax was collected) |
|
Kansas |
3 years (or 36 months) |
Yes (extended lookback) |
Tennessee |
3 years (or 36 months) |
Case-by-case (extended lookback) |
|
Kentucky |
4 years (or 48 months) |
Yes (extended lookback) |
Texas |
4 years (or 48 months) |
Yes (extended lookback) |
|
Louisiana |
3 years (or 36 months) |
Case-by-case (extended lookback) |
Utah |
3 years (or 36 months) |
Yes (extended lookback) |
|
Maine |
3 years (or 36 months) |
Yes (extended lookback) |
Vermont |
3 years (or 36 months) |
Case-by-case (extended lookback) |
|
Maryland |
4 years (or 48 months) |
4 years (or 48 months) |
Virginia |
3 years (or 36 months) |
Case-by-case (extended lookback) |
|
Massachusetts |
3 years (or 36 months) |
No* (*ineligible if tax was collected) |
Washington |
4 years (or 48 months) |
No |
|
Michigan |
4 years (or 48 months) |
Yes (extended lookback) |
West Virginia |
3 years (or 36 months) |
Case-by-case (extended lookback) |
|
Minnesota |
3 years (or 36 months) |
Case-by-case (extended lookback) |
Wisconsin |
4 years (or 48 months) |
Case-by-case (extended lookback) |
|
Mississippi |
3 years (or 36 months) |
Yes (extended lookback) |
|
Wyoming |
3 years (or 36 months) |
No* (*Reduced Penalty) |
Missouri |
4 years (or 48 months) |
Yes (extended lookback) |
|
|
Eligible Tax Types
The eligible tax types covered by most states’ voluntary disclosure programs include:
- Personal Income Tax
- Withholding Tax
- Corporate Franchise/Income Tax
- Sales and Use Tax (including collected but unremitted tax in certain states)
- Local Taxes
Multistate Tax Commission
The Multistate Voluntary Disclosure Program (“MVDP”) allows taxpayers with potential tax liability in multiple states to negotiate a settlement, using a uniform procedure coordinated through the National Nexus Program of the Multistate Tax Commission (“MTC”).
Advantages to the MTC’s program include a streamlined application and registration process. The program, however, excludes several states, and there is often a lack of direct contact with the state-specific voluntary disclosure representatives. The attorneys within Hodgson Russ’s multistate voluntary disclosure practice assist taxpayers in analyzing and selecting the best forum for resolving their state tax debts and Hodgson Russ has extensive experience operating as an intermediary throughout either process.
Practical Considerations
Hodgson Russ works with taxpayers who are considering a Voluntary Disclosure Program in order to first begin by analyzing their business operations and infrastructure in order to determine:
- Where does the taxpayer have physical presence (“nexus”)?
- Where has the taxpayer established economic nexus?
- What are the taxpayer’s revenue sources?
- In which states are the taxpayer’s sales subject to sales and use tax?
- Is there exposure for related tax types?
Hodgson Russ then assists taxpayers in coordinating their applications and managing the disclosure process, including:
- Quantifying exposures
- Timing applications
- Organizing, monitoring, and prioritizing deadlines
- Reviewing final agreement terms
Hodgson Russ has specific experience in assisting taxpayers in multistate voluntary disclosure processes related to both pre-acquisition due diligence reviews and post-closing escrow and indemnity agreements.
Experience
- Successfully assisted online retailer with 39 state voluntary disclosure, including disclosure and remittance of previously collected sales and use taxes.
- Prepared compliance strategy for $6.9 million multistate voluntary disclosure on behalf of several related entities, including entities previously registered as sales and use tax vendors.
- Managed target company’s multistate voluntary disclosure process in accordance with terms and conditions of purchase agreement, providing regular updates to both target company and purchaser.
- Prepared and submitted post-audit voluntary disclosures on behalf of both personal income and sales and use taxpayers in order to limit post-audit exposure.
- Completed multistate voluntary disclosure on behalf of S corporation shareholders in order to properly report flow-through personal income related to a re-computation of the S corporation’s business allocation percentage.