On August 29 we were pleased to host a webinar with guest presenter Ned Lenhart, CPA of Ampersand Accounting, LLC. Ned explained Voluntary Disclosure Agreements (VDA), what they are and how a seller can go about applying for one. He also described the complexities of dealing with VDAs, and why the “amnesty” program initiated by Multistate Tax Commission (MTC) is unique.
Ned provided a thorough overview of what VDAs are and how they can be a great option for businesses with large potential back tax liability. He noted many of the key difficulties that a business may face when applying for a VDA, and provided some tips on making that process streamlined. He also noted many of the potential pitfalls a business might face if they remain lax about their tax compliance.
Ned’s presentation concluded with a more in-depth look at the MTC VDA, why it is unique, and why online sellers should take an especially close look to determine whether that program is right for their business.
The webinar included time for questions from the audience which we’ve compiled, along with Ned’s answers, here (questions and answers have been edited for clarity):
Q: Is there a threshold of sales, or owed tax, where you would say it’s necessary to look for a back tax solution? In other words, is there a level where a state is more or less likely to come after you?
NL: States are not likely going to go after companies that own only a few hundred dollars. Companies that have just started selling, and are doing around $4000 a month in sales, well that’s not very exciting for a state; they’re more concerned with you going forward. When you’re dealing with companies with, several thousand, or even tens of thousands of dollars owed across several states, it can add up significantly.
So you really have to look at the whole of your liability to assess the cost benefit of applying for a VDA. We’re helping companies and recommending a VDA at only a thousand dollars per state in tax owed, just from the cost-benefit perspective, and also from an administrative cost perspective.
Q: Why should I sign up for the MTC VDA, rather than go through a state’s standard VDA program? Or can I just wait until the next time that something like this will be offered?
NL: Let’s put this in perspective. I’ve been doing this in one form or fashion since 1986. I have never seen a program like what the MTC is doing right now. This is kind of like the solar eclipse we just had, I wouldn’t be willing to wait for the next one to come around. You really need to view this as the opportunity that it is. For those participating states, you have to see what a unique benefit is being offered. We contacted the state of Texas six months ago, and if someone tried this back then, they’d owe 48 months of back taxes. Under this program, they’d owe nothing.
Yes there is some hassle in filling out the paperwork, yes there is some headache in getting documents together, but you walk away without writing a check for anything. So in those states where you would have a liability, I think it’s a wonderful opportunity.
California may not be part of this program, but if you save money on those states that are members, well you can use that money to pay off California or Washington. So I have to think this is a great opportunity if you’re serious about your back tax liability.
Q: If we’ve already registered in some states, but already owe back tax, does that mean we cannot apply for the VDA?
NL: If you’re talking about the MTC Amnesty program, yes, that is the case; that program is for unregistered businesses only. But for VDAs generally, you have to be a bit careful. If, say, you’re trying to correct some error on your application, a line was filled out wrong, there may be some opportunity to correct that, and there could be a way to get in.
The states have programs, not necessarily part of a VDA, but maybe something like a taxpayer disclosure that can help you. So I wouldn’t just throw my hands up and give up. It has to be evaluated on the state, your particular situation, and what you owe. If you do have more questions, feel free to reach out to us at Ampersand, we’d be happy to talk to you about your options. Or at least, do talk with your tax counsel to better evaluate this.
Q: Which states are easier/harder to get a successful VDA with?
NL: All of the states that have a legitimate program in place will work with you. States are very willing to work with you, or your representative, on this. It’s not so much that they make (a VDA) difficult to get. As long as you haven’t been contacted, as long as you meet the fundamental criteria, you will get a VDA.
Now, sometimes the process to get a VDA can be more burdensome. Pennsylvania, for instance, has a nexus questionnaire, and it takes a couple months to get it all back; so sometimes it’s more the timing where some challenges are. Florida is great to work with. We can get those turned around in a couple weeks. Texas is good to work with. California, believe it or not, is good to work with. New York is like in slow motion — but when you get it, it comes through.
All of the states are good to work with, some just take longer, and some have more hoops to jump through. But if you meet the fundamental criteria, there’s no reason not to evaluate doing something in every state.
Editor’s note: We’d like to thank Ned Lenhart of Ampersand Accounting, LLC for his insightful presentation and thoughtful answers to these questions. Find out more, and contact Ned at http://ampersandaccounting.com.