Former Supreme Court Justice Hugo Black once said, “The United States has a system of taxation by confession.” That statement is true at the federal level as well as the state level. In fact, the Texas government relies on its citizens to “confess” their franchise tax, sales and use tax, and other tax obligations through required reports and payments. However, as the world continues to turn, taxpayers fall behind in their reporting and payment obligations, resulting in potential penalties and interest. The Texas Comptroller has instituted the Texas Tax Amnesty Program to help taxpayers obtain a clean slate. Nevertheless, is it a taxpayer’s best option?
The Texas Tax Amnesty Program
The Texas Comptroller enacted the Texas Tax Amnesty Program based on Senate Bill No. 1, which was passed in 2017. According to Section 17.11 of the bill, the program is “designed to encourage a voluntary reporting by delinquent taxpayers who do not hold a permit, or are otherwise not registered for a tax or fee administered by the Comptroller, or those permitted taxpayers that may have underreported or owe additional taxes or fees.”
Moreover, according to the Texas Comptroller:
Tax amnesty applies to periods before Jan. 1, 2018, and only includes liabilities that have not been previously reported to the Comptroller’s office. If a taxpayer has been notified that a period or periods are scheduled for an audit review, or if they are already under audit review, then those periods are not eligible for amnesty. It does not apply to accounts which have been certified to the Office of the Attorney General, accounts which are presently in litigation, or accounts which have been reduced to judgment. Additionally, the amnesty doesn’t apply to local motor vehicle tax, IFTA taxes, PUC gross receipts assessments or unclaimed property payments.
Those taxpayers that participate in the program may file an original report, an amended report, or a tax application without paying any penalties and interest. As a result, taxpayers will only be responsible for their required filings and corresponding tax payments. The program will run from May 1, 2018, through June 29, 2018.
Voluntary Disclosure Agreements
The Texas Comptroller also offers a different opportunity to encourage taxpayer compliance, namely Voluntary Disclosure Agreements (VDAs). VDAs are helpful for taxpayers who want to become compliant in Texas but (1) may have multiple years of non-compliance, and/or (2) do not want to initially reveal their identity.
Regarding VDAs, the Texas Comptroller adheres to the following guidelines:
- Liabilities due to failure to collect taxes and/or file the applicable reports will be limited to reports due four years from the initial taxpayer contact date.
- All taxes that were actually collected by the seller need to be remitted (i.e., there is no four-year limitation on tax collected not remitted).
- Statutory penalties will be waived.
- Interest will be waived on taxes voluntarily disclosed and paid that were not collected.
- Agreements will be offered to taxpayers who have not been contacted regarding an audit or investigation, either verbally or in writing.
Taxpayers who wish to obtain a VDA may have a representative submit an anonymous application to the state to initiate the process. Once the agreement has been approved, taxpayers must file the appropriate reports and pay the voluntarily disclosed taxes without paying penalties and interest.
Businesses who have fallen behind in their Texas tax responsibilities should consider their options. While both options outlined above offer penalty and interest waivers and require that taxpayers have not been previously contacted for audit or investigation, there are key differences. First, the Texas Tax Amnesty Program will only run for two months, while VDAs may be obtained on an ongoing basis. Second, taxpayers who participate in the amnesty program must be transparent with their identity from the start. On the other hand, businesses may initiate the VDA process anonymously through an appointed representative. Finally, for taxpayers who have been non-compliant for over four years, the look-back period of each program cannot be minimized. The amnesty program does not appear to have a limitation, while VDAs are limited to the last four years (assuming taxes have not been previously collected).
Tax Amnesty, Texas Comptroller of Public Accounts(Apr. 21, 2018), https://comptroller.texas.gov/tax-amnesty/.
Voluntary Disclosure Agreements (96-576),Texas Comptroller of Public Accounts(last visited Apr. 21, 2018), https://comptroller.texas.gov/taxes/audit/vda.php.