Sales Tax Colorado works to resolve and minimize companies’ prior and prospective Sales & Use Tax exposure. We will estimate and focus on your most material Sales & Use Tax liabilities first.
Once the exposure quantifications have been completed, we will provide recommendations and assist in executing procedures to rectify the situation. Such assistance may include Voluntary Disclosure Agreements or alternative registration methods designed to minimize prior and future exposure. It may also include negotiations for interest and penalty abatement or reductions, Offers in Compromise, and developing taxability matrices and procedure manuals to further assist in determining taxability to reduce future errors.
Voluntary Disclosure Agreements
Saving Money, Time And Hassle With Voluntary Disclosure.
Is your company registered to collect and pay Sales & Use Tax in every state where you are required to be? If not, consider the benefits of a Voluntary Disclosure Agreement which can save you money and keep you out of future trouble.
Voluntary Disclosure services from Sales Tax Colorado can help you minimize and resolve prior-period tax exposure. If you’ve recently identified prior-period Sales & Use Tax exposure, we can negotiate with the state on an anonymous basis on behalf of your business. We can also work to minimize or abate penalties, interest and past tax liabilities, while helping bring your company into prospective compliance.
What Is A Voluntary Disclosure Agreement?
A Voluntary Disclosure Agreement (“VDA”) is a negotiated settlement on behalf of a company that has not filed Sales or Use Tax returns in a particular state. It typically gives companies the opportunity to willingly pay these taxes without being penalized and to limit the state’s look-back period. This process can save a company hundreds of thousands to tens of millions of dollars. A Voluntary Disclosure Agreement is generally handled by a professional, independent third party who negotiates with the state on an anonymous basis on behalf of a company.
Many states have a policy of encouraging and assisting taxpayers through Voluntary Disclosure Agreements.
How It Works.
In exchange for voluntarily coming forward to disclose a potential liability and agreeing to register and collect Sales Tax going forward, states often waive penalties and reduce or forgive interest. Generally, states agree not to initiate criminal proceedings against the taxpayer (or its officers, directors or stockholders). They also typically will not impose civil fraud penalties based on the information voluntarily disclosed. A taxpayer who voluntarily discloses a prior liability must agree to pay all accrued taxes for an agreed upon look-back period. The look-back period is usually limited to the statute of limitations period.
Keep in mind that there is generally no statute of limitations for a company that has not been filing Sales & Use Tax returns. In such cases, the liability for Sales & Use Taxes extends back to the first day you were considered to have a nexus within a particular state. This can mean the day the first sale in the state was made subsequent to establishing nexus. VDA programs vary by state. It is important that the person negotiating these agreements has a thorough understanding of these various programs including:
- What terms to typically expect from each state.
- The degree of latitude that state statutes grant to VDA unit personnel to modify the standard VDA terms.
- The right contacts at the individual revenue departments.
- Sufficient experience in the respective states to know what favorable terms are possible.
A well-negotiated Voluntary Disclosure Agreement with a state can limit a company’s exposure for Sales & Use Tax and may include more favorable terms than typical agreements.
Criteria For Qualifying.
When determining eligibility for a Voluntary Disclosure Agreement, states typically consider factors such as whether the company:
- Has a tax liability to report; is located outside state; and was not previously registered in the state.
- Is currently engaged in business in the state.
- Is choosing to register voluntarily with the state.
- Has not previously been contacted by the state or its agents regarding its activities in state.
- Failed to pay the tax or file a return due to reasonable cause, and not due to negligence or intentional disregard of the law.
Streamlined Sales Tax
Registering with the Streamlined Sales Tax (SST) Agreement states can be very beneficial in certain scenarios and can help make the Voluntary Disclosure process simpler and straightforward. Under the Streamlined Sales Tax agreement, a group of states have joined together to provide common definitions and rules for Sales & Use Taxes among the participating states.
The most significant potential benefit may be complete relief from all accrued Sales & Use Tax liabilities in one or more member states. In this respect, all member states are required to provide a one year amnesty period upon becoming a Streamlined Sales Tax member state. The SST became effective on October 1, 2005, but additional states continue to join as full or associate members.
The original amnesty period has passed so this reduces the overall amnesty benefit and complicates the decision as to whether SST registration will result in a net benefit. The most significant drawback to SST registration is the requirement to file Sales & Use Tax returns in all the SST member states for a minimum of three years including states in which the registrant would not otherwise have a legal requirement to file.
A careful evaluation of your firm’s situation is essential to see if SST registration is the right exposure resolution option for you. Our professionals can help with the evaluation and ensure you make an informed decision. Sales Tax Colorado can also assist you with the registration process and some of the technical implementation considerations and issues such as:
- Assist in understanding your company’s benefits, rights and obligations associated with participating in the SST program.
- Assist with completion of the Central SST registration process.
- Assist in identifying and managing completion of the additional Sales Tax registration requirements imposed by individual SST states.
- Assist with selection of an SST Certified Service Provider (“CSP”) and the corresponding process of outsourcing your SST state compliance process to the CSP.
- Assist the CSP in understanding your company’s products and services.
- Perform any necessary tax research and proactively supply the CSP provider with any information needed to load the tax decision tables.
- Review the taxability logic contained in the proposed tax decision tables to identify and correct any material inaccuracies.
- Meet with and communicate with your company’s personnel, CSP representatives and respective state representatives as needed to insure proper installation and integration of the CSP software and to fully turn over your Sales & Use Tax function to the selected CSP.
- Notify you of any obstacles that might affect the feasibility of SST participation and provide you with proposed alternative approaches for resolving your prior period Sales Tax obligations in relevant SST member states.
SST is not right for everyone. Other exposure resolution options may be best for you. Selecting which approach to use to resolve prior period noncompliance is a business decision that should be considered carefully for each applicable individual taxing jurisdiction.
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