State and Local Taxes Summary
Kim Tarnakow, CPA
July 24, 2020
Previously, we looked at the 5 most common items falling under the State and Local tax umbrella: Income tax, sales tax, business licenses, ad valorem taxes and unclaimed property. State and local taxes are becoming more important to all businesses, no matter how big or small the business, operating in one community or across the country. Many smaller taxpayers don’t feel that they are big enough to be concerned with SALT. Typically, the owner wears many hats and doesn’t have time to worry about any additional tax compliance. What if, as a small business, you aren’t assessing sales tax correctly, or haven’t reported use tax? What if you don’t have all the business licenses you should? If this is discovered upon audit, this potentially could be a good-sized assessment with taxes, interest and penalties. Are you prepared for this? Or, what if this is found upon SALT due diligence when you are selling your business so that you can retire? Are you willing to lose some of the purchase price for noncompliance in the state and local tax area?
The larger, multi-state taxpayer may feel that they are doing fairly well. Are you filing income tax returns in all the states in which you have nexus? Are your sales being sourced correctly? Are you compliant in the sales tax area with all the remote sellers sales tax rules that have come about in the last year or so because of the Wayfair case? Are you obtaining all of the business licenses that you should, or is unclaimed property being reported and to the correct state?
No matter what a business looks like, there are potential noncompliance issues in the state and local tax area. Here at TTPA, we are available to assist you in identifying areas that may have exposure, quantifying the exposure, and rectifying issues that may exist. Noncompliance relief may come in the form of a state amnesty program or through a voluntary disclosure agreement.
Amnesty programs are typically established legislatively, for a limited period of time and focus on a particular type or types of taxes. The tax types, benefits and taxpayer eligibility vary by state. Often penalties and/or interest are waived, the lookback period may be limited, and the taxpayer’s identity is known. If noncompliance is discovered by a taxing jurisdiction after an amnesty program has been in effect for the tax, the penalties for noncompliance will be harsh.
Voluntary disclosure agreements (VDA) are often available on an on-going basis by many states. With most VDAs, the penalties and sometimes interest are waived, the lookback period is usually limited (often to 3 or 4 years) and the taxpayer’s identity is not disclosed to the taxing authority until both the taxpayer and the jurisdiction agree to the terms of the VDA. Once both parties agree, the taxpayer’s identity is revealed and the tax and any interest will be due in a very short period of time. If parties cannot agree on the terms of the VDA, the VDA can be withdrawn without revealing the identity of the taxpayer.
If you would like to have a free consultation regarding SALT and your business, please contact Kim Tarnakow at firstname.lastname@example.org or at (205)733-8265.