You might want to file for a voluntary sales tax disclosure if you want to avoid penalties. However, you have to meet the test.
Transcript
Why Would You Want to File a Voluntary Disclosure for Unpaid Sales Tax?
The answer is quite simple: penalties. You want to be able to pay back the sales tax without having penalties ranging from 50 to 100 percent.
According to most states, this is when a Voluntary Disclosure Agreement (VDA) will most likely work for you:
Three Key Conditions for VDA Eligibility:
- You never filed paperwork with the state for your business.
- You never filed a single sales tax return with the state.
- You have not been contacted by the state for an audit.
Common Misunderstanding About Timing
In recent times, I was told by a business owner that now that they are currently undergoing a sales tax audit, they want to come clean.
But that’s not going to happen when you’re trying to benefit from a voluntary disclosure.
That’s the equivalent of wanting to come clean after a police officer has already pulled you over for speeding, and now you’re going to say:
“Officer, I want to come clean with the drugs that are underneath my seat.”
But the bottom line is that you can’t come clean after you’ve already been caught.
Next Steps
Call us if you want to get more information on a sales tax voluntary disclosure. Thank you.
Frequently Asked Questions
What is a Voluntary Disclosure Agreement (VDA)?
A Voluntary Disclosure Agreement (VDA) is an arrangement that allows businesses to come forward and pay back owed sales tax without facing severe penalties, typically ranging from 50% to 100%. It’s a way to mitigate the consequences of past non-compliance if the business qualifies.
Who qualifies for a voluntary disclosure on unpaid sales tax?
You may qualify for a VDA if your business meets these three conditions: (1) you’ve never registered or filed paperwork with the state, (2) you’ve never submitted a sales tax return in that state, and (3) the state hasn’t contacted you for an audit. All three must be true.
Can I apply for voluntary disclosure during a sales tax audit?
No. Once a state initiates an audit, you are no longer eligible for a voluntary disclosure. Trying to apply after an audit begins is too late, much like admitting guilt after being caught in the act.
What are the penalties avoided through voluntary disclosure?
By entering a VDA, businesses typically avoid hefty penalties that could reach up to 100% of the tax due. The agreement allows payment of back taxes with reduced or no penalties, and sometimes reduced interest.
What should I do if I think I need a voluntary disclosure?
You should contact a tax professional immediately. Acting quickly, before the state finds you, is essential to preserving your eligibility and minimizing your financial exposure.