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Multistate Voluntary Disclosure Programs

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.