Staying abreast of state nexus requirements is a tricky task. Gone are the days when physical presence in a state was required for nexus. In today’s economy, as interstate sales are a large portion of many companies’ revenues, states are increasingly determining nexus on connections other than physical presence. Even taxpayers who put forth all efforts to maintain state compliance sometimes realize they should have been filing income tax or collecting sales tax in a state where they haven’t been physically present.
When this happens, there is no need to panic. Equally so, ignoring the issue will not make the problem go away. Many states offer Voluntary Disclosure Agreement (VDA) programs that enable taxpayers to report previously undisclosed liabilities for taxes, such as income tax and sales tax. The benefits of working through a VDA include:
- The taxpayer or taxpayer’s representative works directly with a state agent to easily register with the state agency and clarify any questions
- The “look-back period” for filing tax returns and audit statutes is limited, often to three or four years*
- Certain states allow a simplified filing of sales tax for the look-back period
- In most states penalties are abated and in some states, interest is abated
Taxpayers with undisclosed liabilities in multiple states may consider applying for multistate voluntary disclosure through the Multistate Tax Commission (MTC). The MTC facilitates the disclosure of tax liabilities for multiple states by working directly with each state’s VDA program.
Not every taxpayer qualifies for a VDA, and there are a few important limitations, such as the inability to amend returns or request refunds for tax periods within voluntary disclosure. Therefore, it is important to check with your tax professional before applying to a state program. Each VDA is unique and Cray Kaiser can help. Call us today if you have questions about how state nexus applies to your company or if you believe your company could benefit from a VDA.
*Exceptions include Iowa, with a typical look-back of five years, Nevada, with an eight-year look-back, and a Hawaii look-back period of 10 years.