Category Archives for VDA

If You (or Your Clients) Have Customers in New York, Listen Up

Sales Tax in the Empire State Just Got Worse

New York just (January 15, 2019) posted a notice on their website that they’ve had an economic nexus law all along. And, guess what? It’s been effective ever since the Wayfair decision was announced.

Here’s what they said on their website: On June 21, 2018, the United States Supreme Court ruling in South Dakota v. Wayfair (138 S.Ct. 2080 [2018]) eliminated the prohibition on a state imposing sales tax collection responsibilities on businesses that have no physical presence in that state. Due to this ruling, certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective. Businesses that fall within this definition and make taxable sales in New York State are required to collect and remit New York State and local sales tax.

What’s a Vendor?

The term vendor includes a person who regularly or systematically solicits business in New York State by any means and by reason thereof makes taxable sales of tangible personal property to persons in the state. A person is presumed to be regularly or systematically soliciting business in the state if, for the immediately preceding four sales tax quarters:

  • the cumulative total of the person’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000, and
  • such person made more than 100 sales of tangible personal property delivered in the state.

Notice the NY test is NOT and Either/Or test like it is in most other states. In NY , your client must have more than $300K in sales AND more than 100 transactions. That’s one slightly good thing about NY compared to other states.

Here’s what NY says businesses should do next:

Therefore, a business that has no physical presence in New York State but meets the requirements outlined above must register as a New York State vendor. Such business is required to register as a vendor immediately if it has not already done so…

https://www.tax.ny.gov/pubs_and_bulls/publications/sales/nexus.htm

That’s It! No Grace Period…

Most states allowed some grace period when they announced their policies vis-a-vis Wayfair. After all, this is a big change and businesses need some time to get their tax collection systems up and running. But not New York. But it gets even worse…

Should Your Client Register Immediately? Maybe Not…

This is where things get a little dicey, as I see it. I know they said that businesses who meet the definition of a “Vendor” as defined above should register immediately, but what about the periods between now and June 21, 2018.

Did You Notice When They Said the Law Became Effective?

Go back up to the first paragraph and notice this: “Due to this ruling (Wayfair), certain existing provisions in the New York State Tax Law that define a sales tax vendor immediately became effective. Wait, the Wayfair decision was effective June 21, 2018, so that means the ‘dormant’ NY statutes would also have become effective as soon as it was constitutionally allowable. And don’t look now, but the Supreme Court does not make prospective-only decisions. As was mentioned in the oral arguments, once the Supreme Court says the commerce clause means X, then it always means X, not just in the future. Statutes can be implemented on a go-forward basis, but interpretations like in the Wayfair case are not time bound. So NY may be looking to impose its economic presence standards back to June 2018, and might not be barred from going back even further.

Would New York Do Such a Thing to Business?

History shows that they will. Absolutely. Look at what they did very publicly to Sprint, My Pillow, and others. And it might not be the sales tax auditors that initiate the actions. It could very well be done by “whistleblowers” anxious to cash in on the 25% bounties offered by the state. They would get the ball rolling and then involve the state’s Attorney General. This could be a nightmare in the making.

For More on This, Check out Our Podcast on the New York Sales Tax Breaking News

Get the link to New York’s site to report fraud HERE

Learn how much a whistleblower can earn HERE..

Find the link for the story on My Pillow HERE.

Find Andy’s article on My Pillow HERE.

Find the story on Sprint HERE.

Find Andy’s story on Sprint HERE.

To get with us for a FREE Strategy Call go 
HERE.

Texas Tax Amnesty: Is Fresh Start the Best Start?

State tax amnesties are few and far between, so when Texas Comptroller Susan Combs announced an amnesty for the state of Texas on March, taxpayers had cause for celebration. Amnesties are usually beneficial for the state as well as for many taxpayers. In general, the states offer amnesties with the hope they will get a quick revenue boost to fill their coffers immediately, as well as add new or more reliable revenue streams from the new or newly compliant taxpayers. Most states kick off their amnesty programs with a lot of fanfare to generate interest and offer a limited window of time to create a sense of increased urgency. Texas is no different. Texas’ program began on Tuesday, June 12, and will run through, Friday August 17; slightly longer than two months. To help build excitement, the state named the amnesty program “Project Fresh Start.”

Before we get caught up in the building excitement and expanding sense of urgency, let’s ask the question, “ Is Fresh Start the Best Start?” The answer, as is so often the case when it comes to sales tax, is: It depends! It depends on your particular set of circumstances. A voluntary disclosure program (VDA) is often called an “ongoing amnesty” program, which is an appropriate phrase to describe a program very similar to a state amnesty program in some ways, and different in others. The differences in the programs combined with your circumstances determine if a VDA is a better choice for you. Let’s examine both programs to help you decide what the best plan is for your fresh start.

True Amnesties?

Whether we are talking about amnesties or VDAs, note that neither is a full pardon or “true amnesty.” In both cases, you still have to pay the back taxes. Amnesties typically only waive penalties and all or part of the interest owed on the back taxes. True amnesties do exist, though.

The Streamlined Sales and Use Tax Agreement allows for the waiving of all payment of back sales taxes, penalty, and interest. From the time a state becomes an associate member until 12 months after it becomes a full member, participating states must offer a true sales tax amnesty. Ohio, Tennessee, and Utah currently offer amnesty as associate members, and Georgia will continue to offer amnesty as a full member until July 31, 2012. These amnesties do not expire until 12 months after the states become full members. However, utilizing these amnesties is very complicated. Before using this program, we suggest you learn more about it, as it has some drawbacks. A good place to start is with an article by Andrew Johnson, founding partner of Peisner Johnson & Company, “Are You For or Against Amnesty?”

The Rationale Behind the Programs

States are looking for ways to close budget gaps and increase revenue, so offering amnesty may seem counter-intuitive because they forgo penalties and interest revenues. You may be thinking, “If it sounds too good to be true, then it probably is.” However, with state amnesty programs that adage is wrong. To understand why this is wrong we should realize that states expend a good deal of effort and money tracking down and auditing non-registered and non-compliant companies. By encouraging companies to step forward voluntarily, this allows states to redirect their efforts in other directions. When a company comes forward, the state receives an immediate lump-sum cash infusion consisting of numerous years of back taxes and perhaps some interest. Revenues from VDAs or amnesty programs is basically a windfall. Not only does the state receive a lump sum payment of back taxes owed, but it now has a taxpayer that will likely continue to pay taxes on a going-forward basis.

Texas Voluntary Disclosure Program

One of the most advantageous features of a VDA to a taxpayer is the limited look-back feature. If a company has not been registered, then there is no statute of limitations. In theory, in an audit, a state could go back to the first day the company began to do business in that state. In practice, most states go back only seven to 10 years. VDA agreements are attractive to taxpayers because the states agree to limit the look-back period, typically to three or four years. Each state is different. Texas has a look-back period of four years.

The second greatest feature of a VDA is the waiving of penalty and possibly some interest. While just about all the states waive 100 percent of the penalty, only a handful waive any interest. Texas is unique in that it waives 100 percent of the penalty and 100 percent of the interest. This feature more than makes up for the slightly longer look-back period of four years.

One of the major drawbacks of a VDA program is that most states will not enter into a voluntary disclosure agreement if they have already contacted you. A handful of states — like Michigan — will, but the majority will not. Texas falls into the majority and generally will not allow you to enter into a VDA once they have contacted you. Companies that have already registered in most states, including Texas, are ineligible for a voluntary disclosure agreement. VDAs have several other benefits and drawbacks, but for the purposes of our Fresh Start comparison, we will concentrate on these. If you would like to learn more about VDAs or amnesties, read “You Missed the Tax Amnesty Express”

Texas Fresh Start Amnesty Program

The biggest reason we generally prefer VDAs over amnesties, as mentioned in a previous tax amnesty article, is because many amnesties don’t allow for a limited look back period. Texas offers no look-back protection. If you have not registered in the state previously, then the state will require you to file and pay taxes for either how long you have been doing business in Texas, or seven to eight years, whichever is lesser and depending on tax type. Waiver of penalty and interest are the same. The Fresh start program waives 100 percent of the penalty and 100 percent of the interest.

The greatest advantage the Fresh Start program offers over the VDA is that it is more flexible for existing taxpayers. Texas VDA excludes registered companies for the tax in question, but the Fresh Start amnesty program may allow you to participate. The exceptions are: You cannot have already reported the tax on a return, be under audit, be identified for an audit, or have signed a settlement or VDA agreement.

The Fresh Start amnesty program covers all state and local taxes and fees administered by the Comptroller’s office, with the exception of Public Utility Commission gross receipts assessments, and is available for those periods where the filings were due prior to April 1, 2012.

Conclusion

Could a VDA be a better start when considering a fresh start in Texas? Although the answer depends on your circumstances as discussed, in most — but not all — scenarios, we believe that a VDA program will be the better choice.

If you have exposure, now is the time to step forward. In many states, we have seen a concerted effort to step up discovery and enforcement activities in the periods following an amnesty. Texas has a very large department of auditors and is aggressive in assessing interest and penalties, which can add up very quickly. I recently spoke with Daniel Holcomb, a former state auditor with almost 30 years of service in the Texas Comptroller’s office and now a CPA with Peisner Johnson, and he said, “Amnesties come very infrequently, so between the VDA and the Fresh Start, we currently have some great options and incentives for companies to become compliant.” I couldn’t agree more.

New chart: Sales Tax VDAs by State

Voluntary disclosure agreements are a useful way to mitigate past liabilities while becoming compliant for sales tax purposes. Nearly every state offers a VDA program for sales tax, and if you qualify and take advantage, it could save quite the headache. One of the challenges is that VDA programs vary widely by state, and keeping up with the changes and variations between the states is a handful.

In the state of Texas for example, a VDA will waive all penalties and interest associated with any back taxes you may owe, and they will limit themselves to a four-year look-back period. Hawaii, however, will waive penalties but will require a 10-year look-back period and no interest waiver.

Oklahoma offers a VDA program with a three-year look-back, and the department will also grant a full penalty waiver and will reduce the interest by half. Compare that with the state of Iowa, whose look-back period is dependent on the amount of time your business has been operating in the state and can be up to five years, while offering a penalty waiver with no interest waiver.

In addition to what they offer, states vary in their requirements to qualify for a VDA. The state of California for example, will only enter into a VDA with a taxpayer if they have not been contacted by the state or any of its offices, and the taxpayer cannot be under audit.

Contrast this position with Maine’s VDA, where taxpayers who have been contacted by the state are not automatically disqualified from the program unless they are under a criminal investigation.

Because of the variations between states, tracking down this information would be incredibly time consuming. To save you from the hassle we have composed a chart detailing the differences between the state VDA programs. This is not meant to be exhaustive, but it can give you some helpful information on how best to proceed in your situation. If you would like a copy of the chart, just let us know.

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