Kansas Tax Amnesty Program: September 1, 2010 – October 15, 2010

Kansas will offer amnesty for tax liabilities incurred or accrued prior to December 31, 2008 under the tax amnesty program enacted by the 2010 Legislature.  The amnesty program will begin September 1, 2010 and end October 15, 2010.  In addition to sales and use tax, the program will cover corporate income, individual income, franchise, homestead, withholding, cigarette and tobacco, liquor drink, liquor enforcement, estate, fiduciary income, and mineral severance taxes. 

Eligible taxpayers include individuals or businesses that failed to file a return, understated the liability on a return, or have and outstanding liability.  Taxpayers who are under audit or have been notified of the state’s intent to audit are not eligible to participate in the program.  Liabilities subject to appeal are excluded from the amnesty program as are matters of a criminal investigation.  To participate in the program, taxpayers must submit an application to the Department of Revenue and receive approval from the Department.  In order to qualify for penalty AND INTEREST amnesty, delinquent taxes must be paid along with properly filed tax returns for each taxable period for which amnesty is requested during the amnesty program period (Sept 1 – Oct 15). 

This amnesty program is unique in two ways: 

1.    There is no limited look-back period offered and only those liabilities incurred prior to December 31, 2008 qualify.  This presents a dilemma for those taxpayers who are not registered with the state and have liabilities spanning periods prior to 2008 through current.  An analysis of the scope of exposure and related penalties and interest are required for those with liabilities beyond 2008.

2.    The abatement of interest (in addition to the penalties) is rare.  Some states will afford taxpayers a discounted interest rate during amnesty, but usually some interest will apply.  This can be an attractive benefit to the program that is usually underappreciated – interest rates can be 10% or more in some states.  In Kansas, for the periods prior to 2008, the interest rate ranges from 5% to 10%. 

For more information regarding this program or for assistance with your sales or use tax liabilities, please contact:

Jeffrey W. Meigs

Partner – Consulting Practice Leader

Cell (404)273-6389

Office (877) 893-5304 x.709   (toll free)

jeff.meigs@taxconnex.com

TaxConnex LLC

Sales Tax Solutions From Sales Tax Pros

www.taxconnex.com

Amnesty; Coming to a Location Near You. District of Columbia, Nevada and New Mexico Offer New Programs

As budgets continue to be slashed by state legislatures, the idea of tax amnesty has become increasingly popular.  When Departments of Revenue evaluate their “accounts receivable” of tax revenues, they all say the same thing, “if we could just collect the taxes that we know are due, we could save state jobs”.  While most of us aren’t interested in supporting the inefficient bureaucracy of state government – or saving state jobs, we all can benefit from amnesty programs and the states recognize it as a WIN-WIN. 

The idea of tax amnesty isn’t a new one; states have offered amnesty programs for years.  Under a typical amnesty program, a taxpayer can disclose its tax liabilities without the implication of civil penalties and sometimes interest.  However, within the past year, ten states have already concluded amnesty programs including:  Connecticut, Delaware, Hawaii, Louisiana, Massachusetts, Maine, Maryland, New York, Pennsylvania, and Virginia.  In addition, limited tax amnesty programs were offered by Oregon and Minnesota.   And in a prior blog entry, we discussed Florida’s current amnesty program. 

Now we have three new jurisdictions to add to the list.  Nevada and New Mexico have active amnesty programs that expire October 1, 2010 and September 30, 2010 respectively.  And the District of Columbia has just announced that they will announce an amnesty program at the end of July 2010. 

If you have prior period tax liabilities, you really need to consider participation in an amnesty program.  In addition to the benefits afforded the taxpayer in the form of penalty and interest savings, taxpayers should be aware that typically following an amnesty program, states are less forgiving of penalties associated with prior period liabilities – even under a voluntary disclosure agreement. 

For more information regarding these programs or for assistance in participation in the programs, please contact:

Jeffrey W. Meigs

Partner – Consulting Practice Leader

Cell (404)273-6389

Office (877) 893-5304 x.709   (toll free)

jeff.meigs@taxconnex.com

TaxConnex LLC

Sales Tax Solutions From Sales Tax Pros

www.taxconnex.com

Tax Amnesty in Florida - Coming Summer 2010

House Bill No. 5801, approving tax amnesty for all eligible taxpayers, was passed by the Florida State Legislature and awaits the Governor’s signature for final approval.  The Florida tax amnesty program as prescribed by the Bill begins July 1, 2010 and extends for a period of three months (ending on September 30, 2010).  The program provides for the waiver of all civil and criminal penalties and a portion of the statutory interest for any tax liabilities incurred prior to July 1, 2010.  A 10% “administrative collection processing fee” applies to the total tax, penalty and interest, calculated before application of the amnesty program.  Eligible taxpayers can include a taxpayer under audit, inquiry, examination, or civil investigation initiated by the Department of Revenue, notwithstanding the amount due has been assessed or is part of a proposed assessment.  Any taxpayer under criminal investigation is precluded from participation in the amnesty program. 

To qualify, eligible taxpayers must file all required returns and pay all tax, interest and administrative processing fees.  Interest will be discounted by 25% if the taxpayer has already been contacted by the Florida Department of Revenue or 50% if the taxpayer has not been contacted.  Payment plans are afforded taxpayers upon request and upon entering into a stipulated payment agreement. 

This is an excellent opportunity to assess your sales and use tax exposure in Florida and take action to mitigate your risk.  Typically, states are known to be much more aggressive with tax assessments and less willing to waive penalties after an amnesty program. 

Navigating the Amazon – Internet Sales

Are you accruing a “sales and use” tax liability and don’t know it?  If you market your products via the internet, you might very well be doing just that – creating a tax bill that you don’t even know is due and you won’t have the funds to pay. 

Much has been written regarding the recent sales and use tax legislation in New York, Colorado and North Carolina impacting internet sales – referred to by many as the “Amazon Tax”.  While each of these states has adopted slightly different variations – they all have created quite a stir in the internet retail market.  In 2008, New York imposed its will to force internet retailers to collect sales tax on its sales to New York customers when it legislated that web sites (many of which are “Amazon affiliates”) which have nexus in New York and refer customers to an out-of-state internet retailer for a fee represent an agency relationship and thus cause the out-of-state internet retailer to have sales and use tax nexus in the state.   The result – an estimated $70 million in sales taxes collected from an estimated 30 internet retailers during the last fiscal year.  When similar legislation was passed in Rhode Island and North Carolina, Amazon decided to discontinue its affiliate program in those states. 

More recently, Colorado has instituted a program to try and strike a balance between forcing internet retailers to collect the sales and use tax and creating a level playing field relative to the sales and use tax for in-state vendors.  The Colorado program requires any internet retailer to advise their Colorado customers of their use tax obligation to the state.  The advice must be in the form of a letter detailing the purchase amount(s) subject to the tax and must be mailed annually by January 31.  In addition, the envelope must include the phrase “Important Tax Document Enclosed”.  In addition, this same information must be supplied to the state.  Amazon’s reaction was the same – it discontinued the affiliate program in Colorado citing the burdensome nature of the requirement.  North Carolina has made a similar request of Amazon – provide the list of North Carolina customers and purchases.  Amazon has sued North Carolina in response. 
There are two very strong arguments driving Amazon’s decision with regard to North Carolina and Colorado.  First things first – the First Amendment – arguing that North Carolina’s request for purchase information for each customer violates the First Amendment, Amazon has gained support from the ACLU which threatened to join the Amazon law suit against the state. 

In Colorado, Amazon sited the burdensome nature of the law and interpreted the requirement as a way to essentially force the internet retailers into a sales tax collection responsibility.   I think this is the ideal message to send to Colorado and other states where sales and use tax schemes are onerous on interstate retailers in particular. 

These trends reflect the desperation of states whose budgets are overspent and/or underfunded.  States are in need of revenues, and fast, and internet companies have become increasingly more attractive targets for fast revenue.  And the trends continue with California and Illinois considering similar legislation.  Although, I expect California’s bill is dead on arrival as Governor Schwarzenegger threatened to veto last year’s attempt at a similar bill and he hasn’t changed his stance since. 

While New York can boast an increase in revenue from the Amazon Tax, other states have done a disservice to their economy by stripping jobs and revenues from their overall tax base.  Amazon continues to market its products and sell to customers in these states, notwithstanding the termination of the affiliate program.

If you are thinking about generating sales via the internet or you currently make internet sales, you must pay attention to your marketing activities and know your nexus footprint.  A mistake could cost you as much as 8% of every dollar in revenue generated – plus penalties and interest.  While the burden of compliance can be significant, the cost of compliance is immaterial compared to the potential exposure created by non-compliance. 

Update on Massachusetts Amnesty Program

Late last year I reported that MA was providing an amnesty program for the payment of delinquent taxes.  Recently, the sate revealed the details of this program.

Period:  April 1, 2010 to June 1, 2010

Tax Types: The amnesty program is limited to taxpayers with the following existing business tax liabilities: sales-use tax, sales tax on telecommunications services, meals tax, meals tax local option, materialman sales tax, withholding income, performer withholding, pass-through entity withholding, lottery annuity withholding, room occupancy excise, room occupancy excise local option, convention center financing fees on room occupancy in Boston, Cambridge, Chicopee, Springfield, West Springfield, and Worcester, convention center financing surcharge for sight-seeing tours, convention center financing surcharge on vehicle rentals in Boston, convention center financing surcharge on parking in Boston, Springfield, and Worcester, deeds excise, cigarette excise, cigars and smoking tobacco excise, club alcohol beverage excise, gasoline excise, special fuels excise, special fuels excise local option, and boat/recreational vehicles sales tax.

Eligibility: Open to taxpayers who have received Tax Amnesty notices, and have unpaid and previously self-assessed tax, taxpayers who who are disputing the unpaid balance of assessed tax, or taxpayers who are delinquent in pay the tax liability. 

Amnesty Program: Taxpayer must pay full amount of tax.  No limited look back.  Taxpayer must pay interest but state will waive penalty.

Payment of tax and interest must be delivered by June 1, 2010. Failure to pay the tax by this due date, could result in additional penalties being imposed.

Colorado Makes Big Changes to Sales Tax

1. Effective March 1, 2010  Colorado will begin taxing downloaded software and maintenance contracts that include upgraded delivered electronically.  House Bill 10-1192

2. Effective March 1, 2010 out of state vendors that are part of a controlled group as defined by federal tax law will be presumed to have nexus in Colorado when any other member of the controlled group is a retailer with nexus in Colorado.  

3. Effective March 1, 2010 retailers who do not collect sales tax in Colorado now have a variety of new responsibilities to meet.  The failure to meet these responsibilities will result in a fine.

a.  send notice to all Colorado purchasers by January 31 of each year showing the amount of purchases made by the buyer for use in Colorado.  This notice should include dates of the purchased, description, amount of purchase.

b. notice must be sent via first-class mail and must include the words "Important Tax Document Enclosed"

c. by March 1 of each year, the retailer must submit the same purchase information to the Colorado Department of Revenue

d. retailers with over $100,000 of Colorado sales must submit this information in electronic format.

e. The state can impose of a fine of $10 on the retailer for each notice that is not sent to purchasers in Colorado as required unless the retailer can show reasonable cause. 

I fully expect more states to begin taxing downloaded software so this is not a huge surprise.

The other CO provisions appear very unique and rather harsh.  I'm sure there will be many legal challenges to these provisions, especially to the fines and penalties that could be imposed on out of state companies.  Looks like more work for consultants and attorneys.

"I wish we had talked with you sooner"!

During the past few weeks, I've heard this phrase from several clients who found themselves in a deep mess with sales tax and are looking for some ways to fight their way out of the mess.  Each of these company's was aware that sales tax was going to be a consideration in their business and made a good effort to comply with the rules.  When a unique and unusual transaction came up, they relied on their intuition and and forged ahead.  2 years later, these clients now realize they made the wrong decision and may owe a substantial amount of tax as a result of their effort.  In each case, this issue could have been prevented if they had made a quick phone call to their CPA or to a competent sales tax consultant. 

Sales tax can be very complex and it is not always intuitive.  Do not let your instinct lead you to an incorrect conclusion.  Get some help.  The best time to manage the sales tax obligation is at the time of the sale, not afterwords. 

We offer 30 minutes of free sales tax consulting to anyone who calls.  No catch.  If you have a question, call and we'll help you with it.  There is no excuse to ever utter the words "I wish we had talked with you sooner."

Missouri and Arkansas Leading Way in Tax Reform

It was bound to happen. As state revenues plummet, state legislatures are getting creative on how to implement long term tax structure changes that will potentially create a less volatile revenue base and reflect the transformation of their state's economic base.  Whether these changes will actually happen is a wild card, but once the process has been set in motion, it can be hard to stop.

In Missouri, a resolution has been introduced to establish a 5.11% "fair tax" on sales of tangible property and on selective services.  The tax would replace the current state sale and use tax, corporate and individual income tax, withholding and Bank franchise tax and local earnings taxes.  The measure would still need to be approved by voters and would not be effective until January 2012. 

This is certainly a unique tactic playing off the much discussed federal "fair tax" plan that has been languishing in Congress for many years.  The trick with these taxes is getting the rate set at a level that is revenue neutral. What is not clear about this bill, is how local sales tax would be handled.  As you may know, Missouri has a myriad of local taxes and a cumbersome procedure for local sales tax administration.

In Arkansas, a ballot for a constitutional amendment to replace all current state taxes with a 12% flat sales tax rate has been approved by the Attorney General.  If passed, the amendment would take place in July 2012.  The Arkansas plan has a plan for the state to provide "refunds" to lower income taxpayers of the flat tax.  If passed, this tax would replace other income based taxes.

While I applaud the creativity of the state legislatures on finding new ways to raise revenue, there may be some significant implementation issues in moving to this format.  While the current sales tax collection and remittance system may not be perfect, the multistate business community has, for the most part, developed an understanding of how the system works and when tax must be collected.  As more state begin to develop state specific taxes and collection rules, there could be some chaos in converting all of the existing businesses to the new formats.  Further, what would be the nexus standard used for a "fair tax" or a "flat tax"?  Are these just sales taxes being labeled something new or are they new taxes that would potentially have new nexus rules. 

As this year's legislative sessions progress, I would not be surprised to see more states put up some trial balloons similar to Missouri and Arkansas.

The Auditor says "Prove it"!

A software client of mine is working with a client to secure a refund of tax erroneously charged on downloaded software.  There is no question that the state does not tax downloaded software.  The state has said they have no problem approving the refund once my clients "proves" they downloaded the software. 

Sounds easy enough until you start to evaluate the documents in place to track downloaded software.  The customer says it was downloaded but can't provide any electronic record of the process.  My client says it was downloaded but they can't provide any detail either.  There was no "shipping" charge on the invoice, but that is not conclusive.  We have implemented new procedures to document these transactions.

As states continue to be aggressive on sales tax collections they will likely start demanding proof of every type of non-taxable transaction.  Don't forget credit card receipts and slips.  This can be a gold mine for many auditors because lots of companies don't keep these detailed records.

The point here is that the taxpayer has the burden of proof to support any non-taxable transaction it makes.  Whether its downloaded software or a non-taxable service, the taxpayer has to have the documentation and "proof" to withstand an audit.

Your thoughts please!!

Happy New Year

Massachusetts Tax Amnesty in 2010

During 2009, numerous states had tax amnesty programs that prompted a good response from taxpayers who knew they owed taxes but were afraid to come forward without some type of protection. 

For 2010, Massachusetts seems to be the first state to announce its intention to have an amnesty program for 2010.  The details have not been published yet, but here is what we know:

1. All payments for tax must be made by June 30, 2010

2. The program will only last for 2 months.

3. Penalties will be abated.

4. Taxpayers who are eligible but fail to participate in the amnesty program will be assessed an additional $500 penalty if they are audited or attempt to come forward after the program expires.

What to do now?

Because this program expires June 30, 2010 that must mean the actual amnesty program will be early in the year. Maybe March, April, or May).  With only a two month time frame, companies must be ready to go once the state announces the details of the program. There will be little time for gathering data and for identifying the risks.  Without a disclosed "look back" period, it will remain a bit uncertain how much data you will need to process to determine the correct exposure.

I would also expect other states to be announcing amnesty programs or other incentives for companies to come forward during 2010.  We will keep you posted as we hear of additional opportunity. 

If you have liabilities, don't wait for an amnesty.  Consider the voluntary disclosure.  You may get the same or even better treatment under the VDA as you would the amnesty programs.