Understanding all aspects of VAT compliance can be difficult and mistakes are sometimes made despite the best intentions. At Avalara, we know that our clients sometimes realize that they should have collected and transferred taxes to countries where they were not. If that happens, they might ask, “What am I going to do?” As part of a voluntary disclosure agreement, a company generally agrees to register and pay its current and future taxes. In addition, most countries insist that the company pay taxes and interest for a minimum number of open return years (return period). Most of them forgive all civil tax penalties during the post-travel period and can forgive some of the interest. The most important thing is that states generally agree never to review fiscal exercises before the retrospective period. And while few people explicitly waive criminal sanctions, most states do not want to risk the success of voluntary disclosure programs by examining a company that has come forward alone to pay its taxes. A taxpayer with a potential tax burden in more than one state will realize that this service is faster, more efficient and less expensive than approaching each state individually. Participation in the MVDP is not billed to the taxpayer.
State revenue/use tax and income/franchise tax (including Hawaii`s GET and Washington`s B-O tax) are the types of taxes that are generally subject to a voluntary disclosure agreement (VDA). Prior contact between a state and the taxpayer through a type of tax disqualifies the taxpayer from participating in voluntary advertising of this type of tax. The “contact” includes filing a tax return, paying taxes or receiving a government request for the type of tax. Multi-state voluntary advertising procedures, paragraph 5.2. When introducing a VDA with the state, the taxpayer is required to file tax returns, pay tax due on tax returns and register with the state (if necessary) in order to waive the penalty for the duration of the return period, as provided by the VDA. Interest on unpaid tax obligations incurred during the feedback period is not expressly waived by the government. In addition to VDAs, a company can benefit from other tax reduction strategies. Depending on fiscal sovereignty and the specific facts and circumstances of a taxpayer, states may propose amnesty programs or negotiated conclusion agreements.
In addition, a company can reduce VAT liability by collecting tax-exempt certificates from customers or by demonstrating that customers have already paid a user tax on products sold. Participating in a Voluntary Disclosure Agreement (VDA) may be something you should consider if you have not registered to bring it together in a state where you should have it. But is a VDA for you? In talking to our clients, we know there are a lot of questions about VDAs. To answer some of the questions and help you decide if a VDA is right for you, keep reading to see four common misunderstandings about VDAs. A nexus and tax impact study allows a company to determine whether it can be threatened by unpaid taxes. Many states offer voluntary information programs that reduce or eliminate penalties or interest on past public or local taxes. These programs often limit the number of years a state can look back to determine the taxes payable.