Is Applying for a Tax Amnesty or Going Through a State's Voluntary Compliance Program a Good Idea?

So it's difficult for me to answer that question for everybody because it's a highly fact-specific question but generally the way that I view state amnesty plans or state voluntary disclosure plans is kind of like a sucker's bet. The states have created this great deal for themselves. They lack enforcement mechanisms to go after a lot of multi-state taxpayers and so what they've done is they've created a program that if you come forward and you pay all the tax that you owe for let's call it three years, they'll be kind enough to waive the penalty portion. They're not going to waive any of the interest or they may waive the interest but basically they don't have to do anything and they have all these people coming forward and saying we owe tax pay over the tax. In some cases it's a great way of mitigating liability, particularly if you have Nexus or minimum contacts in a state that exceed or greatly exceed the disclosure period for the voluntary disclosure. So it's not like a pocket no, but at the same point it's not a pocket yes either. It's all these companies that tend to think that by going through voluntary disclosure and just paying over all this tax it's the best thing and the problem is from a financial perspective, that may not be the best course of action for the business. You might not want to go through voluntary disclosure. It may not make sense to go through voluntary disclosure, it may not make sense to participate in the amnesty, so before you make that decision, before you jump into "I'm gonna go through voluntary disclosure," "I'm gonna go through amnesty," "I'm gonna subject myself to jurisdiction in this particular state," back up. Look at the landscape of the company, look at all of its sales activity, look at all the places that it potentially is exposed to and then make a plan based on what the best thing for the company is. It's not a great thing for the company if the company has to pay all these past due sales taxes and state income taxes and go insolvent. You're not helping anybody so the important thing is build a plan, create that plan and then strategically use voluntary disclosure programs and amnesty programs to accomplish your objectives. That's the much better way to leverage those and it's the better way to know if they make sense for your business.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law