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The current economic conditions continue to put stress on various states budgets. One way that state governments are looking to increase their coffers is through more aggressive collections on income and franchise taxes for taxpayers that have failed to file and pay taxes. The states are seeking taxpayers that have a physical presence or “nexus” in the state or an “economic nexus”. Physical presence can be having an employee perform certain functions in a state, having property in a state, or even a subcontractor performing work for your business in another state. Economic nexus involves advertising or solicitation in a state with substantial sales to a state.
Several states are offering the “carrot vs stick” theory also known as amnesty where a taxpayer may come forward under a specified amnesty program, pay back taxes (and interest) for a period of prior years and avoid any penalties. If, however, the taxpayer does not come forward, the “stick” is significant penalties for failure to file and pay taxes. States that are currently offering amnesty programs are summarized below. Please consult your Keiter Stephens representative to review your specific situation.
The Florida Department of Revenue has issued a Tax Information Publication explaining the state’s tax amnesty program, which runs from July 1 to September 30, 2010. All taxes administered by the Department are eligible, except unemployment tax and Miami-Dade County Lake Belt Fees. Tax amnesty applies to tax, penalty, and interest that were due before July 1, 2010. Taxpayers must complete a Tax Amnesty Agreement to participate. Under the tax amnesty program, taxpayers will pay no penalty and only half of the interest due, if they: (1) report a tax liability that the Department did not know about; (2) file a late return for a tax obligation previously unknown to the Department; or (3) are responding to a Letter of Inquiry or a self-audit request. Taxpayers will pay no penalty and only three–fourths of the interest due, if they are responding to a Department bill, delinquency, audit, or other assessment. However, a 10% administrative collection processing fee will be imposed on any known debt over 90 days old and will not be waived under the amnesty program. The TIP also explains eligibility for tax amnesty; lists the taxes included in the amnesty program; provides examples of overlooked taxes; and explains how to apply for tax amnesty and how to file back taxes. (Florida Tax Information Publication 10ADM-02, 07/01/2010.)
District of Columbia
The District of Columbia is providing a tax amnesty program between August 2, 2010 and September 30, 2010 for all taxes administered by the Office of Tax and Revenue with the exception of real property related taxes and the ballpark fee. All tax periods prior to December 31, 2009 are covered by the amnesty program, which includes an abatement of taxpayer penalties and fees due and no imposition of criminal penalties. Notice, D.C. Office of Tax and Revenue, 07/29/2010, District of Columbia Tax Amnesty Program FAQ, Office of Tax and Revenue, 07/29/2010
Kansas has enacted legislation that authorizes a tax amnesty program from September 1, 2010 to October 15, 2010 for tax liabilities due and unpaid for tax periods ending on or before December 31, 2008 L. 2010, S572 (c. 165), effective 06/10/2010; 2010 Kansas Tax Amnesty Instructions, Kansas Department of Revenue, 08/01/2010
Illinois enacted legislation that will establish a 2010 tax amnesty program beginning on October 1, 2010 and ending on November 8, 2010. The program will apply to taxes due to the State of Illinois for the taxable period occurring after June 30, 2002 and prior to July 1, 2009. L. 2010, S377 (P.A. 96-1345), effective 08/16/2010
The New Mexico Taxation and Revenue Department has announced a temporary amnesty period for individuals and businesses that will run from June 7 to September 30, 2010. This limited time offer provides individuals and businesses relief from the interest and penalties associated with unreported state taxes that were due prior to January 1, 2010. State taxes that have already been assessed or are currently under audit or investigation are not eligible. However, other unreported state taxes that have not been assessed, audited or investigated, may be eligible. The Department will consider the following to determine eligibility for amnesty:(1) the taxpayer has not been selected for audit by the Department; (2) amnesty is not being requested for existing liabilities; (3) the taxpayer is not the subject of a criminal investigation; and (4) taxpayers in bankruptcy have bankruptcy court approval of the agreement, if required by bankruptcy law. http://www.taxrelief.newmexico.gov/
The Nevada Department of Taxation is required to allow a taxpayer who on July 1, 2010, is delinquent in the payment of a tax, fee or assessment to pay the amount due without any penalty or interest in certain circumstances. The taxpayer must file with the Department a request for relief and pay the unpaid tax, fee or assessment in full to the Department between July 1, 2010, and October 1, 2010. The amnesty provision does not apply to any person who has entered into: (1) a compromise or settlement agreement with the Department regarding the unpaid tax, fee or assessment; or (2) a compromise with the Nevada Tax Commission regarding the unpaid tax, fee or assessment. A person who requests or receives amnesty relief may be selected for an audit and audited by the Department in the same manner as a person who does not request or receive relief. [L. 2010 Chapter 10 §64.]
Maine has established the 2010 Tax Receivables Reduction Initiatives, which are intended to encourage delinquent taxpayers to pay existing tax obligations. This program is composed of a “short-term initiative” and a “5–year initiative.” The short-term initiative applies to tax liabilities that are assessed as of December 31, 2009 and interest and penalties subsequently assessed on such tax liabilities. The 5-year initiative applies to tax liabilities that were assessed as of June 30, 2005 and interest and penalties subsequently assessed on such tax liabilities.
A taxpayer may participate in the initiatives without regard to whether the amount due is subject to a pending administrative or judicial proceeding. Participation in the initiatives is conditioned upon the taxpayer’s agreement to forgo or withdraw a protest or an administrative or judicial proceeding with regard to liabilities paid under the initiatives and not to claim a refund of money paid under the initiatives. These initiatives are available to a taxpayer if the taxpayer:
· properly completes and files a 2010 tax initiatives application as required by the State Tax Assessor;
· pays all tax, interest and penalty for the respective initiative by the end of the initiatives period;
· is not currently charged with, and has not been accepted by the Attorney General for criminal prosecution arising from, a violation of the state tax law as provided in Title 36 or Title 17-A or is not applying for relief on a debt that is the result of a criminal conviction; and
· is not applying for relief with respect to a tax liability for which the state has secured a warrant or civil judgment in its favor in Superior Court.
This legislation does not prohibit the Assessor from instituting civil or criminal proceedings against any taxpayer with respect to any amount of tax that is not paid with the 2010 tax initiatives application or on any other return filed with the Assessor. A 2010 tax initiatives application may be filed from September 1, 2010 to November 30, 2010.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.